Hedge funds globally returned almost 11 per cent in 2010, according to the Dow Jones Credit Suisse Hedge Fund Index team’s 2010 industry review.
The year was marked by increased volatility across sectors, and European sovereign debt was a primary concern with the government bonds of Portugal, Spain and Greece being downgraded by ratings houses, according to the review.
Despite these concerns, four out of five funds surpassed previous high water marks of assets under management (AUM) during the year and 82 per cent of funds posted overall positive returns.
The best performing sectors were global macro (13.47 per cent), event driven (12.63 per cent) and managed futures (12.22 per cent), with eight of 10 sectors overall finishing the year ahead, the report stated.
Total inflows for the year of US$22.6 billion represented the largest annual inflows since 2007, and brought total hedge fund industry AUM to $1.7 trillion from $1.5 trillion at the end of 2009, according to Credit Suisse.
Historical performance data also shows smaller funds with less than US$100 million in AUM have outperformed larger hedge funds (more than $500 million in AUM) by almost 4 per cent per year. This outperformance is greater in periods of positive or negative market volatility, according to Credit Suisse.
Improved hedge fund performance in increasingly volatile markets has renewed investor interest in the space, and when combined with diversification benefits highlights the viability of this asset class, Credit Suisse concluded.