Hedge fund performance continues to recover over the second quarter as an emerging market led recovery reduces risk and improves the credit markets, reports Chicago-based Hedge Fund Research.

For the first time since the second quarter of 2008 industry assets have grown, with $100 billion entering over the second quarter of 2009 - ending at $1.43 trillion.

The asset increase is due to improved performance managing to offset a slowing rate of withdrawal. The HFRI Fund Weighted Composite Index returned 9.13 per cent in the second quarter, the biggest gain since 1999, while 60 per cent less was redeemed than at the end of 2008.

A total of $43 billion left over the second quarter compared to $152 billion in the fourth quarter of 2008 and $103 billion at the start of 2009. The incentive for withdrawal will have been significantly dampened by strong performances from the emerging markets as well as convertible arbitrage and energy/basic materials, the firm said.

“Reflecting the diverse drivers of hedge fund industry performance, recent gains have occurred in an environment in which developed equity markets have been essentially flat,” said Kenneth Heinz, president of Hedge Fund Research.

In other findings, funds of hedge funds tended to be less popular, with $33 billion removed over the second quarter  - compared to $10 billion from single manager funds.

Total capital invested in hedge funds via funds of hedge funds currently stands at $530 billion, 37 per cent of the industry’s total capital and well below the $825 billion which were invested through funds of funds at their peak level mid-2008.