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Sol Waksman

“The December inflow is very bullish for the industry because year-end redemptions typically produce an outflow in December,” said Sol Waksman, founder and President of BarclayHedge. “Additionally, about 50% of hedge fund managers will collect fees for their performance last year, a much larger share than 32% in 2009, and we estimate that industry revenue in 2010 clocked in at a hefty $53 billion.”

Risk appetite among hedge fund investors is soaring. Emerging markets funds hauled in $5.8 billion (2.5% of assets) in December, the largest inflow since July 2008, while macro funds took in $3.0 billion (2.6% of assets), the heaviest inflow of any hedge fund strategy. Meanwhile, fixed income funds attracted $2.5 billion (1.4% of assets), the eighth straight inflow.

“Macro funds hauled in $13.9 billion last year, which made them the most popular hedge fund strategy of 2010, even though they underperformed the S&P 500 by about 650 basis points,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “But macro themes have dominated markets, and hedge fund investors count on macro managers to navigate extremely volatile currency markets. The bulk of last year’s macro inflow hit after the first leg of the European debt crisis erupted in May.”

Funds of hedge funds redeemed $1.3 billion (0.2% of assets) in December, the second straight outflow, and underperformed hedge funds by about 600 basis points in 2010. Commodity trading advisors (CTAs) hauled in $1.9 billion (0.7% of assets), the ninth inflow in 10 months, as soaring commodity prices have generated a great deal of interest in the space. Meanwhile, many hedge fund managers have set new high-water marks.

“More than 60% of the managers in our database have recovered from the losses they suffered in 2008,” noted Deluard. “While the S&P 500 still sits about 8% south of its year-end 2007 level, our Hedge Fund Index is up about 8%. Meanwhile, flows in the past five months rival those of the pre-crisis period. Hedge funds are on a tear, and continued aggressive investing is a huge plus for asset prices.”

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