Hedge Funds Rise, Even in a Down Year

With the stock market showing an awful lot of unpredictability this year, many institutional investors have headed for hedge funds instead. These investors - including many pension plans - have put nearly $40 billion into hedge funds in 2011, as of last week, according to Pensions & Investments magazine. That's up 24 percent from the inflows we saw in 2010.

The record year for institutional inflows into hedge funds looks unbeatable, though. That was in 2007, when there was more than $66 billion of such assets put into hedge funds.

The funny thing about all of that money entering these funds this year is that 2011 has been very weak for hedge funds. According to the HFRI index, total hedge fund returns were flat through the first half of the year - up just 0.76 percent - then cratered in the third quarter, when they dropped by 5.5 percent. All told, the hedge fund index shows a net loss of 3.33 percent on the year.