Hedge funds have achieved higher returns on average than equities and commodities over the last 17 years, while taking on less considerably lower risk volatility, according to a new study by The Centre for Hedge Fund Research at London, England-based Imperial College.

The research, commissioned by audit, tax and advisory firm KPMG and the Alternative Investment Management Association, is summarized in a report entitled “The Value of the Hedge Fund Industry to Investors, Markets and the Broader Economy”.

It found that, on average, hedge funds returned 9.07% per annum after fees between 1994 and 2011, compared to 7.18% for global stocks, 6.25% for global bonds and 7.27% for global commodities. The research also demonstrated that hedge funds were significant generators of “alpha”, creating an average of 4.19% per year from 1994-2011.

Hedge funds achieved these returns with considerably lower risk volatility as measured by Value-at-Risk (VaR) than either stocks or commodities. Their volatility and Value-at-Risk were similar to bonds.

“This research is powerful proof of hedge funds’ ability to generate stronger returns than equities, bonds and commodities and to do so with lower volatility and risk than equities,” said Andrew Baker, CEO of AIMA, a global hedge fund association.

In comparing portfolios that included hedge funds with conventional portfolios comprised of 60% equities and 40% bonds, those holding hedge funds outperformed. They also yielded a higher Sharpe ratio, which characterizes how well the returns compensate the investor for the risk taken.

“The most interesting point to come out of this research is that it disproves common public misconceptions that hedge funds are expensive and don’t deliver. The strong performance statistics, showcased in our study, speak for themselves,” said Rob Mirsky, head of hedge funds at KPMG in Britain.

The new report is the first of a two-part series on the state of the global hedge fund industry. Part two of the report, which will be released in May, is based on a global survey of hedge fund managers. It will explore industry trends, such as the impact of the increasing institutionalization of the industry on hedge fund managers’ operational infrastructure, and how the demands of regulatory compliance and transparency are shaping the industry.