It's been a very choppy year for markets, and hedge funds have been no exception.
Even though the S&P is on pace to end the year up about 11 percent, many hedge funds are lagging, with the industry average hovering closer to 4 percent, according to hedge fund research.
Nonetheless, there were some standout performances:
- Paulson & Company. All their funds are on pace to beat the S&P for the year.
Their Recovery Fund, which has invested in big banks, such as Bank of America, is on pace for a nearly 20 percent gain this year, proving that what seemed like a counterintuitive bet against the prospects of another recession was a smart one.
- Dan Loeb's Third Point. Their Offshore and Partners portfolios are on pace for 29 percent and 36 percent gains respectively, net of fees.
A big driver for growth in 2010 was post-reorganization plays like Lyondell—which emerged from bankruptcy this year —that has returned approximarely 50 percent on the firm's investment, people familiar with Loeb's strategy said.
In addition, European equities, like Volkswagen, are driving growth.
- Bill Ackman's Pershing Square. The famous activist investor booked solid gains with high-profile stakes in companies like Fortune brands and General Growth Properties .
The winning strategy for these hedge funds have been to think outside the box, pick individual situations, keep the winners and sell the losers. Plus, they have made large size bets on their best ideas, Gary Kaminsky said.
Watch CNBC's "The Strategy Session" weekdays at Noon ET.