At the beginning of 2007 the FSA, in their yearly publication of "Risk Outlook",highlighted the problem of traditional asset classes reacting in nontraditional ways, by remaining relatively correlated. The year has seen a huge inflow into Hedge Funds in search of non - correlated assets. Now perhaps is a good time to look back and see if these funds have done "what they said on the tin," that is, to have performed in a market where long equity funds were very volatile and under performing,and to have done so with considerably less volatility.
As there is no standard definition for a hedge fund, and they are sometimes disguised as alternative investments it is likely that there will have been a whole range of results. However in the main, I believe, that many of these funds will have done OK, depending on the underlying strategies employed. If you hold any of these funds now is the time to take a long hard look at the performance over the last 2 quarters. These funds are rarely priced on a daily basis so it may be some time before you can get the information.
If your performance in this asset class has met, or exceeded, your expectations don't get carried away. Even though they are designed to be less risky, they are difficult to place on a risk spectrum. Transparency issues and failure of any "black box" methodologies do render them susceptible to catastrophe risk so I would keep them as a relatively small part of any overall portfolio.
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