Hedge Funds Fall 4% In 2011, Second-Worst Year Ever

Jan 3 2012 | 2:14pm ET

Hedge funds suffered their worst year ever in 2008. It didn't take them long to put up their second-worst year.

The average hedge fund fell 4.1% last year, their second-worst on record, according to Eurekahedge. The Eurekahedge Hedge Fund Index fell 0.2% in December.

Most of the losses were suffered in the second half, Eureka said, and hit smaller hedge funds the hardest. The Mizuho-Eurekahedge Top-100 Index actually rose 2% in 2011, a year that saw the Standard & Poor's 500 Index finish almost perfectly flat.

Fixed-income hedge funds did best on the year, returning 1.5%, while arbitrage funds added 0.6%. Regionally, Latin America was the place to be, with funds focused there rising 2%. North American funds, by contrast, lost 0.8%.

Despite the ugly returns, other indicators of the hedge fund industry's health were good for 2011. Hedge funds took in $67 billion in new money, $1 billion more than in a much more successful 2010, increasing the industry's size to $1.72 trillion. And last year saw the second-highest number of new launches in history.

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