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Hedge funds end 2007 in positive ground

Date: Wednesday, January 9, 2008
Author: HFR

NEW YORK, Jan 8 (Reuters) - The $1.8 trillion hedge fund industry ended the year on a high note, as strong performances in emerging markets, technology and certain credit strategies pushed the Hedge Fund Research Weighted Composite Index up 10.36 percent for 2007, according to data released on Tuesday.

Just about every sector in Hedge Fund Research's 30 strategy sub-categories ended 2007 in positive territory, with the strongest gains of 35.88 percent for Asian emerging markets investing, Chicago-based HFR said. The group tracks thousands of hedge funds to compile its figures.

Including other emerging markets, such as eastern Europe, Latin America and elsewhere, emerging markets in total gained 24.91 percent in 2007 after December's gain of 1.75 percent, HFR said.

The worst performer was financial stock investing, which fell 1.62 percent in December, putting it down 5.88 percent for 2007 as financial stocks slumped from a severe credit pullback after rising subprime mortgage defaults.

That scenario also affected high-yield investing, leaving that index down 0.14 percent for the year, HFR said. And real estate was also hit, causing that category to fall 2.41 percent in December, a slump that erased all gains for the year and left it down 1.33 percent for 2007.

But technology investing proved resilient, posting gains of 15.68 percent for the year in spite of being down slightly (0.46 percent) in December.

Energy investing also proved strong, posting gains of 1.95 percent in December, leaving it up 16.47 percent for the year.

Hedge funds, which are typically private partnerships that don't disclose performance data, aim to make money in up or down markets by using "long" and "short" strategies, backed by debt to amplify returns.

There are nearly 10,000 hedge funds and "fund of funds," or funds that invest in hedge funds, worldwide, with nearly a third practicing mainly long-short equity investing, the biggest category, HFR calculates. Most typically charge a 2 percent management fee and 20 percent of all gains.

The industry has grown from a modest $39 billion in 1990 to $1.8 trillion as of the end of the third quarter 2007, the group said. (Reporting by Dane Hamilton. Editing by Gary Hill)