Equity-based hedge fund strategies outperformed the pack with an 11.53 per cent return from market neutral strategies and 10.13 per cent from long/short equities. Returns during December were a key contributor to the strong annual performance, with an average of 2.37 per cent achieved during the month. Of the 152 funds listed in the database, 47 funds returned higher than the 2010 average of 8.52 per cent, while 16 funds achieved returns above 20 per cent. The top three performing funds for 2010 were 36 South Regent Fund SPC (112 per cent), 90 West Global Basic Materials Fund (73 per cent) and Naos Small Companies Fund (56 per cent). The local industry has come a long way from the early 2009 nadir when the global financial crisis sparked a liquidity crunch and forced investors to redeem their hedge fund allocations.
In early 2009, I was invited by Joseph Wahba at AustralianSuper to deliver one of a number of asset class presentations to their board of trustees and investment teams. The room was full of investment luminaries, so I was wondering how I got invited. Nevertheless I was pleased to see that a hedge funds representative achieved a seat at the table. AustralianSuper was an early supporter of hedge fund investing and had $1 billion-plus exposure to the sector. Most allocations were made through hedge funds-offunds. The purpose of the January 2009 session was to crystal-ball gaze what was to happen in all asset classes. I stuck my neck out and called a high single digit, low double-digit return for hedge funds for 2009. It turned out that I was right.
Here was my logic at the time. Most of the hedge fund industry redemptions were placed in the third and fourth quarters of 2008. Almost overnight, assets in hedge funds and funds-of-funds had halved in the first quarter of 2009. My view was that individual managers suddenly had fewer assets to deploy. After the hubris of 2005 to 2007, these managers could get back to focusing on making money. Plus there would be more market opportunities with less money chasing an abundance of opportunities, particularly in credit. I figured that the hedge fund industry would return to its long-term performance of around 10 per cent compound annual return and then some. So, what about 2011? This year I can’t put my neck on the chopping block because I have no idea.