2010: A Banner Year for Hedge Funds

Hedge funds had an incredible 2010 in terms of performance. The group averaged a return of just under 20% for the industries best year since 1996.


Hedge funds' strong performance in 2010 is a result of several factors including a strong equity market, low volatility, and the self-selection process that has eliminated weaker hedge funds over the last couple of years.

If the equity and commodity markets are able to continue their bullish run (and there is certainly no guarantee of this) 2011 could be another great year for hedge fund performance.

Hedge Funds Increasing Leverage in 2011

In January of 2011 hedge funds increased their leverage to levels not seen since 2007, according to Bloomberg.


Though hedge funds seem to be increasing leverage in tandem with the rising market, it is not necessarily the case that record amounts of hedge fund leverage in 2011 indicate increased risk taking overall - available cash and margin available also increased.


Its also not unusual to see hedge funds lever into bullish (appearing) markets. It will be interesting to see how a moderate decline in the equity indexes will affect hedge fund leverage.