Hedge Funds End Wretched Year With Uptick

The hedge fund industry closed out a miserable year on a positive note, posting a slight gain in December, according to data from two research groups.

Hedge Fund Research's composite index showed a 0.4% return for the industry, while Hennessee Group reported a 0.5% gain last month. But while the upside performance may be an indication that hedge funds are turning a corner, both groups also noted that 2008 was the worst year on record for the industry. Hedge Fund Research reported a full-year loss of 18.3% for hedge funds, while Hennessee calculated a 19.2% decline.

Hedge funds have long been touted as a way for high-net-worth individuals to reap mega returns, often with risky or new-fangled investment strategies. That view has taken repeated blows in recent months as funds posted negative returns through the crisis of 2008, and clients demanded their cash back.

Charles Gradante, co-founder of Hennessee, characterized year-end redemptions as "significant," saying that the average fund returned 15% to 25% of investors' assets.

Those demands, along with tough market conditions, have sent the industry reeling, with prominent hedge-fund companies like Fortress Investment Group (FIG Quote) placing restrictions on redemptions. Others, like Blackstone (BX Quote), Och-Ziff (OZM Quote), Cerberus and Citadel are facing tougher times, as well.

Still, there were a few types of hedge funds that performed better than their peers, according to Hedge Fund Research. Short-bias indexes gained 28.3%, systematic diversified indexes rose 18.3%, macro indexes were up 5.7% and fixed-income asset-backed funds posted a slight gain of 0.8%.

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