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Hedge funds lose out to stellar stock markets

Tuesday, 14 Jan 2014 | 7:41 AM ET

Hedge fund gains were trumped last year by the equities boom and generated a global average return of only 8 percent, according to a report published on Tuesday.

(CNBC Explains: Hedge Funds)

Don Bayley | E+ | Getty Images

Alternative investment research provider Eurekahedge found that hedge funds — which use borrowed money to generate returns in both bull and bear markets — that focused on developed markets returned between 8.79 percent and 26.62 percent in 2013, depending on region. In comparison, the benchmark MSCI World Index, which tracks 23 developed countries, gained over 27 percent.

U.S.-focused hedge funds in particular struggled to compete with Wall Street, where the roaring S&P 500 index rallied nearly 30 percent over the year. Meanwhile, North American hedge funds averaged returns of around 10 percent, according to Eurekahedge.

(Read more: 3 big hedge fund predictions for 2014)

What's behind the rise of China hedge funds?
CNBC's Julia Wood and Oriel Morrison discuss why Chinese-focused hedge funds have managed to avoid Shanghai's market gloom.

However, the global total of assets under management hit a high of $2.01 trillion in December, topping a previous high of $1.96 trillion in June 2008.

Over the long-term, the hedge fund industry has grown exponentially, making the hunt for returns ever-harder.

However, Eurekahedge found that funds that focused on distressed debt or were long/short equities beat last year's soft trend. The report did not name the top–performing funds and their managers though.

(Read more: Guess which hedge funds beat the S&P 500)

—By CNBC's Katy Barnato. Follower her on Twitter: @KatyBarnato