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Contrary to the recent influx of negative press about the hedge fund industry, the Alternative Asset Center (AAC) Fund of Hedge Funds Benchmark shows respectable cumulative returns for 2005 and the sector’s second-highest annual performance return since 2000.

The year brought returns of 7.53% for AAC’s equally-weighted average of 2,708 funds of hedge funds,* outperforming the S&P 500 Index by 2.61% and more than tripling the Lehman Bond return of 2.43%. The AAC Benchmark’s 7.53% 2005 return is more than a percentage point higher than its 2004 average (6.43%), and greater than the returns of 2001 and 2002 combined (5.25% and 1.89% respectively).

Nine of the 12 months brought positive returns for the average fund of funds investor, and a second-half surge shows promise for 2006. While four of the first five months of 2005 saw miniscule or negative returns within the AAC Benchmark, funds of funds rallied for combined gains of 5.43% between June and September. The fund-of-fund sector also bounced back from a difficult October to close the year with a 3.53% combined return for November and December. *Only funds of hedge funds with complete performance history since inception are included. The AAC Benchmark includes open, closed, and liquidated funds. The AAC Fund of Hedge Fund Benchmark is an equally-weighted average of over 2,700 funds of hedge funds. Benchmark data begins on January 1, 1996.

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