Hedge funds back to double digit returns

A banker said he expected December's returns would add about two percentage points to the gains of approximately 11% made during the first 11 months of 2006. This would be an improvement on the average annual returns in 2004 and 2005, when the hedge fund industry generated a net return of 9.6% and 7.6% respectively, according to data provider Credit Suisse/Tremont.

The banker said: "2006 was a good year for hedge funds, a welcome return to form."

Hedge funds lagged the main equity indices. The Dow Jones World index was up 18.9% for the year to December 29.

Investable hedge fund indices reported positive returns of about 1% for the month to 27 December, the most up-to-date figures available. Hedge Fund Research's investable index reported a month-to-date gain of 1.32% while Royal Bank of Canada's was up 0.84% and MSCI 0.8%

The investable indices generally record lower gains than their more established, non-investable cousins, which report a month in arrears.

Six non-investable hedge fund indices reported gains ranging from just over 10% to just under 12% for the first 11 months of 2006. Hennessee reported a gain of 10.06%, Van Hedge 10.5%, The Barclay Group 10.69%, Eurekahedge 11.36%, Hedge Fund Research 11.44% and Credit Suisse/Tremont 11.81%.

Hedge funds focusing on emerging markets were the best performers in 2006, gaining just over 20% in the first 11 months, according to Hedge Fund Research's non-investable index. The banker said these managers mostly take long positions in equities and benefit from general rises in the markets where they invest.