History indicates that hedge funds have had better performance under Democratic presidents compared to Republican ones.

Since 1991, hedge funds have generated more alpha when the White House is occupied by a Democrat president rather than a Republican one, despite the initial excitement on Wall Street following Donald Trump's election win.

Despite the industry's underperformance compared to the S&P 500, the gap was smaller during Democratic administrations, with hedge funds delivering average annualized returns of 10.16%, compared to 11.99% from the S&P 500. The gap was larger during Republican administrations, at 331 basis points.

Hedge funds under both parties outperformed when compared with a bond index, with stronger alpha when a Democrat was in the White House.

Despite Democrats serving six more years in the highest office since 1991, Republican administrations had higher total net asset flows ($450 billion) than Democratic ones ($400 billion).

In the 2024 election cycle, hedge fund participants donated more money to one political party than the other. According to a recent report by Open Secrets, individuals in the industry donated $31 million to Democratic candidates, while almost half that amount — $16 million — went to Republican candidates.

The correlation between hedge fund returns and positioning relative to various asset-class performances is greater than the impact of particular policies by the administration. As a result, it is challenging to predict the future of the industry over the next four years.

We should expect to receive insights on how money managers may be adjusting their portfolios at the 14th annual Delivering Alpha event on Wednesday.