Hedge funds performed better under Democratic presidents than Republican ones, history shows

There’s been a rush of enthusiasm on Wall Street regarding Donald Trump’s election win, but hedge funds actually generate more alpha when the White House is occupied by a Democrat president than a Republican one, according to HFR, collating data going back to 1991.

When compared with the S&P 500, the industry underperformed regardless of who was president. But during Democratic administrations, the gap was about 183 basis points, with hedge funds delivering average, annualized returns of 10.16%, compared to 11.99% from the S&P 500. The underperformance gap during Republican administrations was 331 basis points. (1 basis point equals 0.01%.)

When compared with the a bond index, HFR found that hedge funds under both parties outperformed – with stronger alpha when a Democrat was in the White House.

The total net asset flows were higher under Republican administrations (about $450 billion) than Democratic ones (about $400 billion), even though since 1991, Democrats served six more years in the highest office than Republicans.

Surprisingly, the way that hedge fund participants donate in elections was a bit more tilted toward one party. According to a recent report by Open Secrets, in the 2024 election cycle, individuals in the industry donated $31 million to Democratic candidates, while almost half that amount — $16 million — went to Republican candidates.

Of course the takeaway here is that hedge fund returns are far more correlated with positioning relative to various asset-class performances than particular policies by the administration. So, it’s hard to make any predictions about what the next four years entails for the industry.

At Wednesday’s 14^th annual Delivering Alpha event, we should get a sense as to how money managers may be reconfiguring their portfolios.