The hedge fund industry is still grossly underperforming despite strong inflows, a recent report reveals.

The hedge fund industry is still lagging behind broad market indices although there have been strong inflows into the sector, a recent report says.

The industry barely eked out any gain in April, with returns of 0.01 per cent in April, while S&P 500 Index of US equities gained 0.7 per cent, according to the TrimTabs/BarclayHedge Hedge Fund Flow Report. In the past 12 months the industry returned 7.7 per cent, while the S&P 500 gained 17.9 per cent.

It marks a difficult year for hedge funds which according to data provider Preqin have recorded their worst first quarter performance since 2008 when the world was about to sink into recession. Sluggish performance by hedge funds adds to pressure on their traditional fee structure of an annual management charge of 2 per cent and performance haircut of 20 per cent.

“For the last year/18 months the rise in equity markets has driven strong returns for hedge funds,” said Amy Bensted, head of hedge fund products at Preqin in April. “Equity markets have struggled this year and now hedge funds have to be nimble and look for other opportunities.”

Yet inflows remain strong - the industry took in $18.7 billion (£11.1 billion) in April, up from $10.6 billion in March.

Industry assets climbed to a five and half  high of $2.2 trillion in April, according to estimates based on data from 3,369 funds.  Assets rose 18 per cent in the past 12 months but were down 9 per cent from the all-time high of $2.4 trillion in June 2008.