Volatility declined a significant 36.3 per cent in December, ending the month at 7.4, according to the Deutsche Bank Monthly Hedge Fund Trends for January. Gross fundamental equity exposure declined by 0.67 per cent (2.38), but net fundamental equity exposure rose 3.67 per cent ending the month at 0.57.

The report also notes that in December 2012, equity flows topped bonds for the first time since early 2011. The markets research team forecasts GDP growth acceleration to 8.5 per cent in China during 2013.

At year-end, the capital introduction team has seen investors trimming exposure to underperforming managers. In both the US and Europe, Deutsche sees continued interest in high-quality equity long/short managers and, with a more stable macro environment on the horizon, there is renewed interest in global event-driven strategies.

December was a strong month with the median up 1.13 per cent and all strategies performing positively except market neutral, which was slightly down (-0.16 per cent). Year-to-date, credit funds led the pack in Europe (13.38 per cent ) and the US (12.36 per cent). Among equity strategies, US event-driven (8.49 per cent), European long/short (7.02 per cent) and China long/short (8.39 per cent) were the top performing strategies.