While hedge fund launches charged ahead towards the end of last year, average incentive fees continued to head downwards, falling 18.95 per cent industry-wide in 2010, the latest figures from Hedge Fund Research show.

As average incentive fees hit an all-time low for the period since HFR began tracking them, annual management fees remained at 1.58 per cent.

Meanwhile, 743 funds were liquidated last year – a substantial improvement from the low-point of 2008 when 1,471 funds went into liquidation. With 935 new funds formed in 2010, a net 192 funds were added to the industry.

According to HFR, the variance in performance between the best and worst performing funds “narrowed considerably in 2010 from the staggering levels of 2008 and 2009”. This is perhaps unsurprising, given the incredible levels of volatility seen in those earlier years. For example, the S&P 500 (TR) index returned 22.57 per cent over the 12 months to 28 February 2011. However, the three-year return to the same date was just 2.87 per cent, demonstrating what huge swings were registered in the period.

The HFRI Fund Weighted Composite index, a proxy for broad industry returns, returned 10.3 percent for 2010; within this, the top decile clocked up 43.2 per cent while the bottom decile saw falls of 14.6 per cent.

JP Morgan and Goldman Sachs are still the top prime brokers for hedge funds, together acting in this capacity for 49 per cent of all hedge fund assets. Citco Fund Services, Schulte, Roth & Zabel, and PricewaterhouseCoopers rank as the top service providers.