Hedge funds had their best year last year since 1999, according to the Hennessee Group. The Hennessee Hedge Fund Index gained 24.6% in 2009. Equity indices also gained in 2009, with the S&P 500 up 24.7%, the Dow Jones Industrial Average up 18.8%, and the Nasdaq Composite Index gaining 43.9%. In 1999, the Hennessee Hedge Fund Index was up 30.78%.

"Hedge funds competed very well with the stock market, with a lot less risk. Whenever you can achieve market returns with a third less risk, that is professional money management, as opposed to the traditional money managers who are long-only and who achieve market returns with 100% net exposure," said Charles Gradante, managing principal of the Hennessee Group.

"I don't expect the market to do 24% next year. I expect the market to do 8%. I expect hedge funds to do 12%, 12.5%," Gradante added.

Leading the way in 2009 were convertible arbitrage and distressed strategy funds. The Hennessee Convertible Arbitrage Index rose 39.9%, its best year since the group created the index in 1993. Convertible bond funds benefited from elevated levels of volatility and a significant contraction in credit spreads throughout the year, according to the Hennessee Group. The Barclays Aggregate Bond Index gained 5.9% in 2009, and the Merrill Lynch High Yield Master II Index was up 57.5%.

The Hennessee Distressed Index rose 43.3% for the year as distressed funds benefited from long bias and contraction in credit spreads, and the Hennessee Arbitrage/Event Driven Index gained 30.1% in 2009, pushed higher by convertible arbitrage and distressed.


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