70% Of Hedge Funds Lost Money In 2008

by Phillip Morton, Investors Offshore.com

26 January 2009

Hedge funds lost a record 21.44% in 2008 according to the Barclay Hedge Fund Index compiled by BarclayHedge.

“2008 hedge fund losses were widespread, with 70% of the funds that report to us ending the year in the red,” says Sol Waksman, founder and president of BarclayHedge.”

“Managers of funds of hedge funds turned in an even poorer performance, with 85% finishing in the minus column, losing an average of 21.69%.”

Hedge funds began the year holding their own, with the Barclay Hedge Fund Index down just 0.79% through May. But the average fund lost 21.21% from June through November, including a two-month 14.81% decline in September and October when the S&P 500 Index fell 24.21%.

Only one hedge fund strategy was profitable in 2008, and it thrived. The Barclay Equity Short Bias Index turned in a record gain of 41.09% in 12 months, and jumped 20.83% during the September and October stock market plunge.

“With the global economy in a recession and equity markets in a tailspin, being short equities in 2008 was one of the more profitable strategies, second only to being short mortgage backed securities,” says Waksman.

“This was a fairly rare event however, as the overwhelming majority of investors in these sectors are historically net long.”

Hedge fund managers did end the year on an up-tick, as the Barclay Hedge Fund Index gained 0.52% in December, its first monthly gain since May 2008.

“Equity markets recovered as investors began to entertain the notion that the worst may be over for the financial sector,” says Waksman.

Overall, 14 of Barclay’s 18 hedge fund indices regained some ground in December. The Barclay Healthcare & Biotechnology Index jumped 3.31%, Convertible Arbitrage was up 2.86%, Merger Arbitrage gained 1.73%, Pacific Rim Equities was up 1.72%, and Global Macro rose 1.52%.

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