South African hedge fund performance and its persistence between 2000 and 2014

Abstract: This research study aims to further investigate the ability of hedge funds to deliver alpha. Also to determine whether if hedge funds were able to deliver alpha, whether they had the ability to do so persistently. Empirical work regarding the performance of hedge funds and their ability to deliver alpha has been mixed, while studies regarding the persistence of their alpha have been more unified, showing hedge funds are not able to continuously deliver alpha. Risk adjusted performance measures such as the Sharpe ratio, Sortino ratio, Omega ratio and Jensen’s alpha are used to investigate the performance of hedge funds relative to the market. The monthly returns of 59 South African hedge funds are analysed for the period between March 2000 and July 2014. Findings showed that 51 of the 59 funds were able to obtain a higher Sharpe ratio than the market. According to the Sortino ratio and Omega ratio, 49 funds were able to outperform the market, while 57 funds had positive Jensen’s alpha. The Sharpe ratio and Jensen’s alpha indicated that funds are able to deliver alpha persistently.M.Com. (Financial Management