Twenty-Five Years of Hedge Fund Returns

The Journal of Alternative Investments, Forthcoming

Darden Business School Working Paper No. 3498595

34 Pages Posted: 11 Dec 2019 Last revised: 26 Jul 2021

See all articles by Rodney N Sullivan

Rodney N Sullivan

University of Virginia, Darden Graduate School of Business

Date Written: December 4, 2019


The hedge fund industry has grown from $200 billion in assets under management around the turn of the millennium to now over $3 trillion. Many reports have criticized hedge funds for poor performance, particularly since the 2008 global financial crisis (GFC). In this paper, I seek to demystify hedge fund strategies by evaluating fund performance that can be attributed to the markets as well as other well-known systematic factors with an emphasis on outcomes prior to and following the 2008 GFC. When adjusted for risk to stock/bond markets, the evidence shows that, after fees and costs, hedge fund managers as a group have shown a marked decline in risk-adjusted alpha in the 10 years following the GFC. To aid in a better understanding of the alpha deterioration, I further investigate equity hedge fund returns against a suite of well-known systematic risk/return factors documented in the literature beyond traditional market factors. In all, the model explains nearly 90 percent of the variation in returns. Equity hedge funds as a group show meaningful and consistent exposures to many of these factors over time, but whether intended or otherwise, significant changes also occurred (including a significant decline in active risk) following the GFC, in turn influencing their performance. Armed with this information, investors are hopefully better positioned to make more informed decisions in deciding hedge fund strategy allocations.

Keywords: hedge funds, manager performance, asset pricing, factor analysis, performance attribution

JEL Classification: G00, G11,G12, G14, G15, G23

Suggested Citation

Sullivan, Rodney N, Twenty-Five Years of Hedge Fund Returns (December 4, 2019). The Journal of Alternative Investments, Forthcoming, Darden Business School Working Paper No. 3498595, Available at SSRN: or

Rodney N Sullivan (Contact Author)

University of Virginia, Darden Graduate School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-243-0644 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics