Gains in December pushed hedge funds to their best annual returns in a decade, more than balancing 2008’s losses. The Credit Suisse/Tremont index closed the year 18 per cent up while the Hennessee Group index ended 24.9 per cent in the black.
The Hennesee number, which was ahead of the S&P500’s increase of 24.7 per cent, suggested hedge fund managers were helped by decreasing levels of volatility and buoyant equity markets.
According to Credit Suisse/ Tremont, convertible arbitrage funds led the pack with a return of more than 47 per cent. Event-driven, long/short equity and emerging markets vehicles also performed well.
Macro-focused strategies were brought down as managers found themselves caught by the reversal in the US dollar, however. A correction in gold and other precious metals also produced losses for managed futures funds.
Managers were said to be optimistic for 2010, feeling that a likely return to fundamentally driven equity markets would make identifying long and short positions easier.
Hennessee co-founder Charles Gradante said the coming year would mark a return to “typical” conditions after two years of extreme turmoil.
He added: “Managers were shellshocked in 2008 as the credit crisis and massive deleveraging caused a major dislocation in several strategies, specifically convertible arbitrage and high yield. In 2009, we witnessed an incredible snapback in these securities, which drove outsized returns.”