Hewitt Associates, a consulting and outsourcing company, says that with hedge funds posting the strongest returns in over a decade its manager research team performed more than twice the number of hedge fund manager searches during 2009 than the previous year. 

From late 2008 to early 2009, the hedge fund industry was hit by significant redemptions from investors, resulting in a number of fund closures.

However, after this difficult period broad based hedge fund indices were up by around 20 per cent during 2009.

Guy Saintfiet, senior hedge fund researcher at Hewitt Associates, says: "The industry now seems to have put the worst behind it and assets have started to grow again due to a combination of performance and net capital inflows. The number of new fund launches also increased.

"Hewitt has been a strong advocate of the use of hedge funds in a pension fund portfolio for a number of years. We saw the market dislocations in 2008 as an opportunity for our clients to enter this asset class and to get exposure to hedge funds through the use of high quality managers in certain strategies, as well as via fund of funds. Not only have our clients benefited from strong risk adjusted returns, but we have also seen opportunities to renegotiate fees and significantly increase transparency levels with managers.”

One of the strongest performing hedge fund strategies in 2009 was distressed investing, a strategy that invests in securities of companies that are either already in default of lending covenants, under bankruptcy protection, or in distress and heading towards such a position.

"Hewitt's asset allocation team saw the implosion of the credit bubble as an excellent entry point to invest in Distressed Securities. We identified a number of specialist managers that were best positioned to use this opportunity and introduced this idea to our clients. The returns generated during 2009 by our buy rated managers in this asset class were exceptional (between 40 and 50 per cent) and we continue to see attractive opportunities for the next two to three years,” adds Saintfiet.