Hedge Funds Perform Better During Democratic Presidential Terms, Research Reveals

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Hedge Funds Perform Better During Democratic Presidential Terms, Research Reveals

A new study conducted by Hedge Fund Research (HFR) shows that hedge funds tend to perform better when a Democrat is the U.S. president. Data tracking global hedge fund returns reveals that hedge funds achieved an average annual return of 10.2% under Democratic leadership, contrasting with an average return of 8.7% during Republican presidencies.

The research analyzed hedge fund performance from 1990 to 2024 using the HFRI Fund Weighted Composite Index, which serves as a barometer for the returns of hedge funds worldwide. The study also highlighted that hedge fund performance nearly doubled when one party held the majority in both the House of Representatives and the Senate, compared to a divided Congress. Additionally, data showed that hedge fund performance was higher during periods when Democrats controlled Congress.

From a strategy perspective, equity hedge funds delivered the most significant returns during Democratic presidencies, averaging 12.7%. This figure is significantly higher than the 9.6% return under Republican leadership over the last 34 years. Hedge funds focusing on mergers and acquisitions (M&A) and the relative value of various financial assets also performed better during Democratic terms.

However, macro hedge funds, which speculate on macroeconomic trends, represented an exception according to HFR data, recording higher returns during Republican presidencies.

The study also noted that the performance gap, or the range between the highest and lowest returns of hedge funds, was more pronounced during Democratic presidencies. Furthermore, hedge funds’ annual performance was typically highest in the first year of a president's term, with lower returns in the second, sixth, and final years of two-term presidencies.

When adjusting the data to exclude the year 2008, which included the financial crisis, the performance slightly favored Republican presidencies; hedge funds delivered a return of 10.7% compared to 10.2% during Democratic administrations.

These findings were released as U.S. voters headed to the polls on Tuesday, emphasizing the impact of political leadership on financial market performance.