Hedge fund assets grew a record $149 billion during the last three months of 2010, according to new data released on Wednesday.
According to Hedge Fund Research (HFR), which tracks industry performance and asset flows, hedge funds around the world now invest $1.917 trillion.
Investors added $13.1 billion in new money during the last quarter after having put in $19 billion in the third quarter. In total, pension funds, endowments and wealthy investors added $55.5 billion in new money in 2010, the highest annual total since 2007. The rest of the increase during the last quarter came from market gains.
The increased flows came even as the industry delivered only lackluster returns of 10 percent, lagging behind mutual funds and the industry's own more impressive 19 percent gain in 2009.
The industry is almost back to its peak size of the second quarter of 2008, when assets hit $1.93 trillion, right before the height of the financial crisis.
But the flows also suggest investors are taking a more cautious stance by sticking with established players. The data show that 80 percent of net new assets went to big fund firms that oversee more than $5 billion in assets.
The second half of 2010 was a historic time in the hedge fund industry, characterized by powerful and pervasive trends shaping the institutional landscape of the hedge fund industry, Kenneth Heinz, President of HFR, said in a statement.
As the industry is positioned to surpass its previous asset peak, global investors are focused on the dynamics of inflation protection, strategic specialization, enhanced liquidity, improved structure and transparency for accessing hedge fund performance in coming years, he said.
Macro and relative value funds were the most popular with investors, as clients hoped those types of funds could best navigate volatile currency and interest rate markets.
Event-driven funds which focus on mergers and acquisitions were also popular, pulling in $14 billion during 2010.
But the industry's biggest category, equity hedge funds that can take long and short bets, failed to excite investors and added only $2.6 billion in new money during the year.
(Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick)