Following a period of high performance, the financial crisis brought difficult conditions for the hedge fund industry. During 2010 the continued fallout from Madoff and other fraud cases, along with the new provisions of the Dodd-Frank Act and the AIFM directive, have had a wide impact on global funds. The balance of power appears to have swung from managers to investors who are demanding greater transparency. Although there is some optimism, there is also newfound realism, and the outlook for 2011 remains difficult to call.
Following on from 2009, which showed the best performance figures in a decade with average returns around 20 percent, 2010 has brought mixed results as volatility and high correlation lead to a challenging environment for hedge fund managers. Debt issues in Europe in particular, have lead to further opportunities in distressed assets, but have not done the wider market any favours. Hedge funds have nevertheless outperformed markets over the last 18 months and have, for the most part, provided decent to impressive absolute returns in a challenging environment. Specific sectors like emerging markets and distressed assets have done particularly well over the period.
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