Morningstar: Hedge Funds Rise In ’09 As Inflows Return

Jan 25 2010 | 9:17am ET

Hedge funds enjoyed their best year in seven, rising almost 20%, as inflows began to trickle in to the industry, according to Morningstar Inc.

Following a relatively flat December, the Morningstar 1000 Hedge Fund Index ended last year up 19.47%.

“2009 was a windfall year for hedge funds,” said Nadia Papagiannis, alternative investment strategist at Morningstar. “The hedge funds that survived 2008's industry purge, or those that launched in the aftermath, picked up assets at rock-bottom prices and rode the recovery to near record profits, particularly in U.S. equity and debt markets.”

Emerging markets equities hedge funds soared 50.44% on the year, followed by convertible arbitrage funds at 37.26% and U.S. small-cap equity funds at 36.36%. Corporate actions funds rose 29.97%, U.S. equity hedge funds 28.17%, debt arbitrage funds 26.73%, distressed securities funds 23.99% and multi-strategy funds 22.5%.

Funds of funds were up 13.06% on the year, according to Morningstar.

Just two strategies were down on the year, both due to big drops in December. Global trend hedge funds shed 3.12% last month to end the year down 1.48%, while short equity funds dropped 3.11% on the month and 1.41% on the year.

Morningstar also reported that investors continued to return to hedge funds in November, adding $4.65 billion to the industry’s coffers that month. Still, hedge funds suffered $53.4 billion in outflows through the first 11 months of last year, most it from multi-strategy, global equity and U.S. equity funds. In November, European equity funds accounted for much of the increase, with a $1.27 billion inflow.

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