Some of the largest multi-strategy hedge funds are lagging this year, as they struggle to keep up with other firms and their own past performance.

The anemic returns for 2023 follow years of investors flocking to multi-manager, multi-strategy firms including Millennium Management, Balyasny Asset Management, ExodusPoint Capital Management and Schonfeld Strategic Advisors, looking for consistent returns regardless of market conditions.

But so far this year, their performance has trailed other types of funds, even after these managers posted strong August returns.

The PivotalPath Multi-Strategy Index — which includes a broad array of multi-strategy firms — has posted an annualized return of 7.4% since January 2019. This year it’s up an estimated 3.9% through August.

More Skepticism

This year’s performance looks even weaker considering Treasury bills can yield 5.5%, said Jon Caplis, head of hedge fund research firm PivotalPath.

“When the risk-free rate is zero, a 7.4% return is great,” Caplis said. “When the risk-free rate is 5.5%, it creates a lot more skepticism around the multi-strats — especially given the risks embedded in the strategy.”

Those risks include the chance of big losses from crowded trades or a spike in fees, given that expenses in these firms are generally passed through to clients. At the end of 2022, investors paid between 3% and 7% in pass-through expenses, according to a Barclays Plc survey.

A lopsided move in stocks this year is part of the reason for the lackluster returns, given that a handful of companies, including Nvidia Corp. and Apple Inc., are responsible for much of the 17.4% return in the S&P 500 through August.

Multi-strategy hedge funds run their giant stock portfolios in a market-neutral manner, meaning the long positions and the short positions balance each other out and are never concentrated on a specific sector, such as technology.

“For these firms to make money, they need volatility and dispersion, and this year there has been neither,” Caplis said.

What’s more, last year’s biggest money maker, macro investing, has faltered in 2023.

“In 2022, the hedge funds that had at least some exposure to macro outperformed, whereas those with more exposure to equity and credit markets had lower returns,” said Roark Stahler, US head of strategic consulting at Barclays.

This year macro returns are flat at the same time that most of the large multi-manager firms are beefing up the number of macro portfolio managers.

“It could be there is more money chasing fewer opportunities,” Stahler said.

While Ken Griffin’s Citadel outpaced competitors with a 10.8% return this year through August, that still trails its own 38% return last year fueled largely by commodities trades.

Here’s how other hedge funds are faring this year: