2009's hedge fund industry performance was the best in a decade, according to Hedge Fund Research Inc., Chicago.
The HFRI Hedge Fund Weighted Composite index returned 20.04% for the year ended Dec. 31, the industry's highest since the 31.29% return of the index in 1999.
The hedge fund index was buoyed by 2009's substantial equity rally, but trailed the calendar-year returns of the S&P 500 index, 26.5%, and the Morgan Stanley Capital International World index, 35.14%. By contrast, the Barclay Capital Aggregate Bond index returned 5.93% for the 12-months ended Dec. 31.
Nine months of strong markets in 2009 engineered a near reversal of fortune for hedge funds, compared with 2008's abysmal absolute performance as evidenced by the -19.03% return of the HFRI Hedge Fund Weighted Composite index.
Hedge fund industry assets tumbled 26% to $1.4 trillion at the end of 2008 from a peak of $1.9 trillion at the end of 2007, driven both by performance losses and redemptions. Nervous hedge fund investors, mostly high-net-worth individuals, withdrew a net $154 billion in 2008 and $146 billion in the first two quarters of 2009, according to data from Hedge Fund Research, which also publishes the HFRI index.
However, as investor confidence increased beginning in the second half of 2009, net inflows turned slightly positive, totaling $1 billion in the third quarter of 2009, the most recent time period data is available for, pushing total industry assets to more than $1.5 trillion, according to HFR.
“Dec. 31, 2008, was a line drawn in the sand for the hedge fund industry. Performance at the end of that year was poor on an absolute basis, the interests of managers and investors were out of alignment and fundamental, almost existential questions about the future of the industry were being asked by nearly everyone involved,” said Kevin P. Quirk, a partner at vendor consultant Casey Quirk & Associates LLC, Darien, Conn.