Zenith Investment Partners has given seven hedge funds a recommended rating after reviewing 19 managers whose products were available to Australian investors last year.

The Winton Global Alpha Fund and the hedge fund-of-fund Man RMF Dynamic were given highly recommended ratings.

The BlackRock Asset Allocation Alpha Fund - Class D, Morgan Stanley FX Alpha Fund, Morgan Stanley FX Alpha Plus Fund, Select Alternatives Portfolio and Select Futures Fund received recommended ratings.

Last year, the global hedge fund industry saw its biggest decline since it came into existence. Industry consulting firm Hennessee Group estimated that hedge funds on average lost 19 per cent of their value over 2008.

The negative returns have ended the notion that hedge funds could offer absolute returns, Zenith investment analyst James Tsinidis said.

"Obviously they have been impacted by equity and fixed income markets, which is disappointing given that it was a key premise in the sales pitch of the asset class to investors," he said.

But he said when their performance is measured over a ten-year period, hedge funds still outperform global equities.

"It is clear that investors in the asset class must have some tolerance for negative returns over shorter-term timeframes."

Tsinidis said the hedge funds he visited are positive about the outlook for 2009.

"All the major hedge fund managers said there were fantastic opportunities out there," he said. "They see indiscriminate selling, forced selling, and they see opportunities on the back of that."