Select Asset Management's two diversified portfolios, the Select Defensive Portfolio and the Select Growth Portfolio, both ended 2008 deep in negative territory due mainly to poor fund of hedge fund (FoHF) performance.

The Select Defensive Portfolio was down -16.2%, and the Select Growth Portfolio down -26.8%, over the past 12 months. Given the weighting of FoHF's in each portfolio, and the gap between expected and actual returns, they were a significant drag on performance - the Gottex funds for example lost between -20.1% and -37.7% on average in the last quarter of 2008. In retrospect the manager believes the impact of redemptions and poor liquidity on FoHF's was underestimated. Other underperforming strategies in the last quarter of 2008 were property, infrastructure and long and long biased equities.

The portfolios did generate positive returns from other strategies, such as volatility and managed futures, as well as gold. Strong performance in December and early January indicates there are some positive signs for 2009, although markets will remain volatile.

Two of Aurora Funds Management's funds - the Aurora Buy-Write Income Trust and the Infrastructure Buy-Write Income Trust - have outperformed their respective benchmarks in 2008, and go into 2009 ready to take advantage of the emerging opportunities in global markets.

The Buy-Write Income Trust, which returned +1.20% in December but was down -8.19% in the six months since July, outperformed the S&P/ASX200 Accumulation Index and the ASX All Ordinaries Accumulation Index by +18.64% and +21.54% respectively in the six month since July 2008. The fund remained heavily invested in cash in December, and is positioned to invest in compelling investment opportunities as they arise.

The Infrastructure Buy-Write Income Trust returned +0.60% in December but was down -1.90% since inception (December 2007), compared to the UBS Global 50/50 Infrastructure and Utility Index which returned -32.7% in the same period. The manager reported that the fund ended 2008 with most of its capital preserved, with investments in electric, gas and water utilities the key drivers of performance. This has placed the fund in a good position to take advantage of attractive investment opportunities.

Tactical Global Management Group's (TGA) GTAA Fund reported a gain of +1.30% (AUD share class) and +1.81% (USD share class) in December. The 2008 return for the fund was +0.91% (AUD) and-2.74% (USD).

Although the fund did not take any positions at a broad asset class level during December, individual strategies produced positive results. The fund's equity module benefited from the Japanese market's outperformance (up +3.8%) and short exposure to US equities, while the fixed interest module produced gains due to long US and short Japanese fixed interest exposure (partially offset by losses in short exposure to Australian fixed interest).

Going into 2009 the manager believes opportunities may present themselves in equity and fixed interest markets, due to overvalution or misprising of securities and excessive pessimism.

Wilson Asset Management's three listed investment companies - WAM Active Ltd, Wilson Investment Fund Ltd and WAM Capital Ltd - all posted positive returns in December to outperform the All Ordinaries Accumulation Index, which fell by -0.08%.

WAM Active Ltd was up +3.43% in December, which was attributed to positive returns in capital raisings trading, while at the same time the fund reduced its cash level to an average of 70%. Wilson Investment Fund Ltd was up +4.85%, and WAM Capital Ltd was up +3.09%.

The manager is expecting markets to be more orderly in 2009 and is bullish in the medium term regarding new investment opportunities, however will remain cautious given the unusual nature of the recent economic decline.

The MQ Asia Long Short Fund, managed by Macquarie Funds Group, posted a December return of +1.96%, due to gains of over +3% in the Hong Kong, Taiwanese and Korean equity markets. The fund was down -8.93% overall in 2008.

The manager noted that Australia was the only market to have a negative return in December, which offset the fund's positive performance in Asian markets. Regarding the fund's negative 2008 return, the manager attributed this more to liquidity driven price distortions, and the failure of analysts to cut estimates sufficiently for cyclical companies, rather than the general decline in equity markets. Although redemptions have been significant the fund remains profitable, and the manager belives there are an increasing number of investment avenues heading into 2009.

The Pengana Global Small Companies Solution was down -2.2% in December and was -47.5% for 2008. The Pengana Property Securities Fund was also negative in December, down -9.9% (-57.2% for 2008).

The Global Small Companies Solution, a fund of funds which invests with small regional company investment specialists, attributed the result to poor returns from their European manager, which offset positive performance from North America and Asia. The sharp depreciation of the Australian dollar also affected the final result.

The Property Securities Fund, which invests in listed real estate investments, outperformed the sector by +0.59% in December with a portfolio heavily weighted towards larger, less risky business models. The manager will remain cautious regarding the A-REIT sector going into 2009.

Shell Cove Capital Management's Black Marlin Fund returned a disappointing -3.49% in December, however was up +29.15% for 2008.

A sell off of resource equities and a rally in Australian bank stocks were the key drivers of the negative December result. Long volatility positions in US dollar bonds also produced negative returns. The manager believes there are still downside risks heading into 2009, and will remain cautious while looking out for clearer trending characteristics.

The Black Marlin Funds employs a global macro investment approach using long volatility strategies in equities, commodities, foreign exchange and fixed interest markets.

St Helens Capital's (SHC) two absolute return funds, the SHC Arran Fund and the SHC Ailsa Fund, reported gains of +1.27% and +1.51% respectively in December. Both funds significantly outperformed the ASX200 in 2008 (-38.97%), the Arran Fund returning -5.44% and the Ailsa Fund -3.70%.

Both funds, which are Australian equity long/short funds, had a net long exposure in December and gained positive returns from positions in BHP and Wooloworths, among others. Negative returns came from positions in QBE and RIO, among others.

Looking forward into 2009 the manager is cautious in outlook, however is still hopeful there will be some positive catalysts to reverse some of the 2008 declines.

Headland Global Asset Management's Global Diversified Fund, which has mainly been invested in cash since the Lehman Brothers investment bank collapse in September, returned +0.23% in December (+1.61% in 2008). The fund began to re-enter investment positions in early January.

The fund's investment strategies are consistent with the manager's negative outlook for the global economy, and include short positions in commodities and exposure to government debt.

The Headland Global Diversified Fund uses quantitative techniques to allocate capital to major investment themes in global bond, currency and commodity markets.

The Apeiron Global Macro Fund posted a return of -0.43% in December, however was up +18.83% for 2008.

The loss in December was attributed to losses in the fund's foreign exchange and commodity strategies, amidst lightly traded markets. The fund exited the US dollar markets in early December due to market volatility and the lack of market direction going into the Christmas break. The Apeiron Global Macro Fund, managed by Redwood Capital Group, utilises strategies in futures and foreign exchange markets, and seeks to define investment themes within a fundamental economic framework.