Opalesque Industry Update - Hedge funds returned an average of 11.46% with nearly a third the
volatility of equity markets in 2010 while investors added an estimated
Below are early estimates* for December and full year 2010 hedge fund performance and asset flows. A full report will be available later in the month.
* The equal weighted HFN Hedge Fund Aggregate Index was +3.84% in December and +11.46% in 2010. The S&P 500 Total Return Index (S&P) was +6.68% in December and +15.06% in 2010.
* Hedge fund assets increased an estimated +3.48% in December to $2.496 trillion. Net investor flows accounted for an increase of $9.1 billion while performance accounted for an asset increase of $74.8 billion.
* Surges in equity and commodity markets drove December hedge fund returns to one of the best months in the last 10 years. Fixed income and FX strategies lagged, but were still broadly positive.
* Smaller funds again outperformed larger funds during the month. Funds with >$500mm returned an average of +2.66% compared to funds with <$500mm which were +3.89% in December.
* Emerging markets funds trailed other regional classifications in December, with Russia focused funds the lone exception. Early reports from funds investing in China showed negative returns during the month.
* On a risk adjusted basis, hedge funds significantly outperformed equity markets in 2010. The S&P's extra 360 basis points of return over the HFN Aggregate came with nearly 3 times the volatility.
* Investor confidence in hedge funds rose throughout 2010. Industry assets increased an estimated +15.0% in 2010 driven by performance and strong investor inflows. Net investor inflows accounted for AUM increasing 4.0%, or $86.8 billion through the year and the rate of allocations increased significantly in the second half.
* Investors willing to take directional exposure mostly outperformed equities in 2010. The common misconception of hedge funds in 2010 was that performance was disappointing, however many strategies broadly outperformed equity markets in 2010, including sector focused equity strategies (technology, natural resources/energy, small cap and value), mortgage related securities, emerging markets and distressed funds.
* Smaller funds only slightly outperformed large funds in 2010. Despite recent outperformance by smaller funds, there was significantly more homogeneity among small and large fund returns in 2010 compared to 2009.
*Early estimates are based on funds reporting December returns as of January 7th, 2010. Performance has a tendency to drift lower as more funds report. Asset estimates may drift lower, but have not shown a consistent tendency to do so.
HFN's full December report, to be released in the third week of January, will provide details on high water marks and asset flows by strategy and region.
December and Full Year 2010 Benchmark Performance:
Broad and Developed Market Benchmarks:
Fixed Income (FI) Strategies
Equity (EQ) Strategies
Commodity and Foreign Exchange (FX) Related Strategies