Hedge Funds Sputter Towards Pedestrian '10

Jan 3 2011 | 11:04am ET

Barring a very late, very steep rally, hedge funds seemed likely to fall far short of the broader markets in 2010.

Hedge Fund Research's HFRX Index was up just 4.52% on the year as of Dec. 28, with just three trading days left before the ball dropped. By contrast, the Standard & Poor's 500 Index was up 12.7% by the middle of last week.

The poor performance, following last year's bounce-back from 2008's troubles, calls into question the very concept of alpha, one institutional hedge fund adviser told Reuters.

"Hedge fund managers are significantly more conservative than they were are the beginning of 2008, and I don't think there are really the mega opportunities, like there were in subprime in '07 and '08," Parker Global Strategies' Virginia Parket said. "The only way hedge fund managers are going to beat a bull market in equities is if you have leverage… but investors haven't wanted leverage."

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Editor's Note