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Hedge Funds Beat Global Markets in 2010 on Growth

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Jan. 11 (Bloomberg) -- Hedge funds outperformed global markets in 2010, returning 10.9 percent, as North American managers led gains driven by optimism the world’s largest economy is recovering, Eurekahedge Pte said.

The Eurekahedge Hedge Fund Index, which tracks more than 2,600 funds worldwide, rose for the sixth consecutive month in December, gaining 3 percent, the Singapore-based data provider said in an e-mailed report. About $70 billion went into the industry last year, with the total exceeding $1.65 trillion for the first time since September 2008, it said.

Hedge funds extended their 20 percent gain in 2009 amid a recovery from the worst performance on record the previous year prompted by the global credit crisis. The MSCI World Index of 1,663 companies advanced 9.6 percent last year, driven by government efforts worldwide to stimulate growth.

“Hedge funds continued their long-term repair work to investors for what many describe as the fiasco of 2008, fairly or not,” said Kirby Daley, a Hong Kong-based senior strategist with Newedge Group’s prime brokerage business. “This performance was rewarded with a healthy infusion of capital into the asset class, across most strategies, albeit so far mostly to the largest managers.”

Leading Gains

North American funds returned 13.6 percent, Eurekahedge said. Improving economic indicators and better-than-expected earnings drove up investor sentiment, driving the Standard & Poor’s 500 Index 6.5 percent higher in December, it said.

In Asia, Japanese hedge funds posted their best annual returns in five years. They gained 6.8 percent in 2010 and outperformed the nation’s benchmark Nikkei 225 Stock Average’s 3 percent decline for the year, the report said.

Asia ex-Japan managers returned 10.4 percent last year, it said.

The Eurekahedge Eastern Europe & Russia Hedge Fund Index climbed 17.4 percent, while the index tracking emerging markets hedge funds advanced 10.4 percent, it said.

All nine different strategies had positive returns last year, with managers investing in distressed debt returning 21.3 percent to be the best performers, the report said.

Event-driven hedge funds, which invest in companies undergoing transactions such as mergers or spinoffs, followed with a 16.1 percent return, Eurekahedge said.

The report was based on 28.5 percent of the funds which have announced December 2010 returns as of Jan. 10, Eurekahedge said. It plans to release a full version later this month.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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