Hedge funds ended 2011 down 4.16%—the second worst yearly return on record—according to the Eurekahedge Hedge Fund Index, having wound up a difficult year by shedding 0.21% in December
That said, hedge funds—particularly the big ones—managed to outperform underlying markets. The capital-weighted Mizuho-Eurekahedge Top-100 Index was up 2.01% in 2011, while the MSCI World Index was down 0.4% in December and 9.9% for the year.
Total asset flows for 2011 were US$67 billion, which means the entire industry is now worth US$1.72 trillion. And the struggles of existing hedge funds did nothing to discourage the launch of new ones—2011 saw over 1,100 launches, another second-highest total. That said, capital raising remains difficult.
From a regional perspective, Latin American hedge funds provided the best returns for the year: up 2.84%. During the month of December, Latin American funds delivered positive returns (0.65%) but were outstripped by Japanese funds, which posted gains of 1.17% (although for the year, they were down 1.09%). Asia ex-Japan funds were down 1.32% in December and finished the year with negative returns of 12.85%.
As for strategies, fixed income and arbitrage were the best performing of the year— up 1.19% and 0.71%, respectively. For the month of December, fixed income funds added 0.22% while arbitrage funds gained 0.14%. Distressed debt funds turned in the best performance for the month, adding 1.34%, abetted by year-end risk-on trades—the BofA Merrill Lynch High Yield Index was up 2.48% in December. Distressed debt funds were down 2.69% for the year. CTA/managed futures funds gained 0.40% in December, to finish the year with a decline of 3.04%.
Long/short equities turned in the worst performance of the month, losing 0.73% to end the year with a loss of 7.43%. Macro strategies shed 0.49% for the month ended the year down 2.19%. Multi-strategy funds shed 0.18% in December ending 2011 down 2.51% while relative value funds lost 0.18% in December for a full-year loss of 2.51%.
Long-only absolute return funds chalked up their fourth annual decline in 2011, down 13.63% for the year.
As for assets, relative value hedge funds saw the largest percentage increase (year on year) in AUM, gaining 20% in 2011 while CTA/managed futures funds and macro hedge funds attracted the most money from investors—US$19 billion and US$16 billion, respectively, in net positive asset flows.