Hedge funds’ assets increased by 13 per cent in 2009 to $1.7 trillion, according to International Financial Services London, the organisation promoting the UK’s financial sector.

Redemptions continued for the second year running but at a slower pace. The 19 per cent return in 2009, the best hedge funds’ performance in a decade, more than made up for the $85 billion in net outflows, the report said.

A number of organisations that track hedge funds have reported rising returns and improved inflows to the sector in recent months. Even so, the pattern of fund launches suggests investors still put a high premium on high liquidity and transparency. A number of firms have rolled out “hedge fund-lite” products in the form of absolute return funds held in a UCITS III wrapper.

The asset raising environment gradually improved during 2009 with a return to net asset inflows during the second half of the year. Around 60 per cent of hedge fund assets with redemption restrictions at the start of the year were returned to standard liquidity terms by the end of 2009, the report said.