No. 1 Metacapital is followed on the list by Steve Kuhn’s Pine River Fixed Income Fund, which also invests in mortgage bonds and returned 32.9 percent. Pine River captured No. 2 and No. 4 and tied for No. 19. That fund is run by portfolio manager Aaron Yeary. CQS Directional Opportunities, run by Michael Hintze’s London-based CQS U.K. LLP, was No. 3 and the top European fund. Crispin Odey’s London-based Odey European was second best in Europe, with a 24.1 percent return.

Coleman No. 12
Odey is a stock picker, as is Internet investor Chase Coleman, whose Tiger Global fund was No. 1 in 2011. It fell to No. 12 in 2012, with a 21 percent return. Coleman was the only protege of Julian Robertson, founder of Tiger Management LLC, to crack the top 20. “Tiger cub” Lee Ainslie of Maverick Capital Management saw his No. 31 Maverick fund gain 16.0 percent. Ainslie benefited from wagers on Apple Inc., which returned 47.6 percent as of Oct. 31.

David Tepper also made money on stocks. His Palomino fund, at 24 percent, ties for No. 6 in 2012; it was No. 1 in 2009.

The No. 1 midsize fund, with assets from $250 million to $1 billion, is Cheyne Total Return Credit, operated by London-based Cheyne Capital Management. It boasted a 61.4 percent return.

Hedge Underperformance
Those big gains came amid a fourth consecutive year of underperformance by hedge funds. The average return of 1.3 percent compared with a 14 percent gain, including dividends, for the Standard & Poor’s 500 Index through October.

Since Jan. 1, 2009, the average hedge fund gained a cumulative 13.5 percent compared with 69.8 percent for the S&P 500.

“Hedge funds probably oversold themselves for a long time, saying we’re going to get stock-like returns with lower volatility,” says Andrew Junkin, senior consultant at Wilshire Associates, which advises pension plans. “Then 2008 comes and blows those two myths out of the water. We compare their returns to 60/40 stocks and bonds, and over the last five years I’m paying a lot of money for something that really has not delivered.”

Poor returns forced an estimated 635 hedge funds to close in the first nine months of 2012, 8.5 percent more than a year earlier, according to Chicago-based Hedge Fund Research Inc.

Some big-name managers threw in the towel. Thomas Steyer, founder of $20 billion hedge fund Farallon Capital Management LLC in San Francisco, retired at the end of 2012 to focus on public service. Boston Red Sox co-owner and hedge-fund manager John Henry closed his Florida-based John W. Henry & Co. and returned assets to investors.

Moore Giveback
Other titans also returned money. In August, Moore Capital Management LLC founder Louis Moore Bacon said he would give back $2 billion, or 25 percent, of his flagship hedge fund’s assets because he couldn’t achieve the returns he had historically produced.