Morningstar: Hedge Funds Up 10% In '10

A late-year surge helped push the hedge fund industry up double-digits last year—as well as to the point of near-full recovery from the financial crisis.

The Morningstar 1000 Hedge Fund index jumped 4.04% in December. The benchmark finished the year up 10.36%.

"Hedge funds finished strongly in 2010, and most have now fully recuperated from 2008's hangover," Morningstar's Nadia Papagiannis said.

Distressed securities funds had the strongest year, rising 24.47% (3.53% in December). The next-best strategy was corporate actions, which jumped 19.4% (4.58% in Dec.). Other strong performers included developed Asia stock funds, which rose 14.58% (5.52% in Dec.), U.S. equity funds (13.41%, 4.12% in Dec.), emerging markets equity funds (13.28%, 3.72% in Dec.), U.S. small-cap equity funds (12.82%, 6.18% in Dec.) and global trend funds (12.28%, 7.35% in Dec.).

The only losing strategy in 2010 was short equity, which shed 2.03% (up 5.42% in Dec.) in a year in which the Standard & Poor's 500 Index advanced more than 15%.

The Morningstar Hedge Fund of Funds index returned 4.13% on the year (2.93% in Dec.).

Morningstar also said that, through November, hedge funds had taken in some $2.7 billion in net inflows, thanks to a whopping $3.8 billion in inflows in November.