2010 saw weak returns on hedge funds

(Reuters): Hedge funds often claim to offer strong returns that are not correlated with broader markets, but in 2010 many failed on both of those counts. That failure came in large part because hedge funds cannot make as many bets with borrowed money, analysts said. Hedge funds on average returned just 4.52 percent this year to December 28, according to Hedge Fund Research’s HFRX index. That is short of the FTSE 100’s 10.5 percent jump or the Standard & Poor’s 500 Index 12.7 percent rise. Those lower returns failed to offer the diversification that hedge fund investors crave, experts said. Nearly every hedge fund strategy tended to move in synchrony with the markets and with other hedge fund strategies this year, according to hedge fund data tracked by Lipper.

The hedge fund industry’s lackluster performance in 2010 could spur more investors to question whether it is worth paying higher management fees for the funds, experts said.

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