Key Takeaways
- • The HFRI Weighted Composite Index delivered full-year 2010 returns of 10.42% after fees, with December performance contributing 3.15%, demonstrating solid sector-wide performance despite a mixed year for markets.
- • Short-biased hedge funds underperformed significantly, with the HFRI EH Short Bias Index posting a loss of 21.30% in 2010, reflecting the upward trajectory of equity markets throughout the year.
- • Energy and Basic Materials strategies led performance gains with the HFRI EH Energy/Basic Materials Index returning 15.98%, while Multi-Strategy funds achieved 13.93% returns via the HFRI RV Multi-Strategy Index.
- • The Lyxor Hedge Fund Index (subsidiary of Société Générale) posted more modest full-year returns of 5.82%, with December contributing 2.25%, creating a divergence between major performance benchmarks.
Summary
Hedge funds delivered solid returns in 2010, according to performance data released by Chicago-based Hedge Fund Research, with the industry showing resilience in a year marked by market volatility and macroeconomic uncertainty. The HFRI Weighted Composite Index, which measures average performance after fee deduction, reported full-year 2010 returns of 10.42%, with December contributing 3.15% to annual results. This performance characterization as "solid" rather than "stellar" reflects the mixed market conditions that defined the period, though the double-digit annual return suggests the sector successfully navigated a transitional economic environment.
Performance divergence across hedge fund strategies was pronounced. Short-biased strategies, designed to profit from market declines, suffered significantly with the HFRI EH Short Bias Index declining 21.30% for the year, a consequence of broad equity market strength throughout 2010. Conversely, commodity-linked and multi-strategy approaches thrived. The HFRI EH Energy/Basic Materials Index emerged as the strongest performer with returns of 15.98%, benefiting from sustained demand for natural resources and rising commodity prices. The HFRI RV Multi-Strategy Index posted 13.93% returns, reflecting the diversification benefits embedded in flexible strategy allocation.
Alternative benchmark data from Lyxor Asset Management, a Société Générale subsidiary, provided a lower performance reading, with the Lyxor Hedge Fund Index reporting full-year 2010 returns of 5.82% and December performance of 2.25%. This 470-basis-point spread between the HFRI and Lyxor composite indices likely reflects differences in fund composition, weighting methodologies, and fee structures across the two measurement approaches, underscoring the importance of benchmark selection for institutional performance evaluation.
Performance divergence across hedge fund strategies was pronounced. Short-biased strategies, designed to profit from market declines, suffered significantly with the HFRI EH Short Bias Index declining 21.30% for the year, a consequence of broad equity market strength throughout 2010. Conversely, commodity-linked and multi-strategy approaches thrived. The HFRI EH Energy/Basic Materials Index emerged as the strongest performer with returns of 15.98%, benefiting from sustained demand for natural resources and rising commodity prices. The HFRI RV Multi-Strategy Index posted 13.93% returns, reflecting the diversification benefits embedded in flexible strategy allocation.
Alternative benchmark data from Lyxor Asset Management, a Société Générale subsidiary, provided a lower performance reading, with the Lyxor Hedge Fund Index reporting full-year 2010 returns of 5.82% and December performance of 2.25%. This 470-basis-point spread between the HFRI and Lyxor composite indices likely reflects differences in fund composition, weighting methodologies, and fee structures across the two measurement approaches, underscoring the importance of benchmark selection for institutional performance evaluation.
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