(January 3, 2012) — Last year proved to be the second worst year on record for hedge funds as global markets remained unpredictable amid the European debt crisis, risk-on risk-off investor sentiment, political wrangling, and geopolitical events, according to Singapore-based Eurekahedge Pte.
The Eurekahedge Hedge Fund Index was flat to slightly negative in December, bringing the yearly number to -4.1%, while the MSCI World Index returned -0.4% in December and was down 9.9% for 2011. For the year, 60% of hedge funds remained in negative territory.
Meanwhile, Eurekahedge showed that total asset flows for the year were US$67 billion, lifting the size of the overall industry to US$1.72 trillion.
Furthermore, Latin American hedge funds provided the best returns for 2011, gaining 2% over the year. The second best performing region was North American hedge funds, even though it was in negative territory for the year, with a drop of 0.8%.
Despite the dismal year for hedge funds, an annual survey by the National Association of Pension Funds recently showed that pension money is going into hedge funds at a faster rate than other asset classes. The firm found that the allocation to hedge funds has risen from 2.6% to 4.1% over the last year.
The findings by NAPF follow another study published by research firm Preqin in November that showed that 38% of institutional investors surveyed aim to increase their exposure to hedge fund investments in 2012. The firm noted that although institutional confidence has waned as a result of poor returns toward the end of this year, the outlook for next year remains positive. “Hedge fund managers can expect a large influx of capital from institutional sources over the next 12 months, and assets could potentially reach the pre-crisis watermark of $2.6 trillion…While we expect demand for further liquidity and transparency to continue, with increasing numbers of investors opting for separately managed accounts, traditional fund structures are likely to remain at the forefront of investment portfolios,” Preqin stated in a release.