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Hedge Fund Assets Fell 10% In December

by Phillip Morton, Investors Offshore.com

19 January 2009

HedgeFund.net (HFN) has released early estimates indicating hedge fund assets fell an additional 10.6% in December to USD1.84 trillion, down from a peak of USD2.97 trillion in the second quarter of 2008.

The asset drop was largely due to net investor redemptions and fund liquidations of a record USD221bn during the month. As a result, in the last quarter of 2008, HFN estimates investor redemptions and fund liquidations reduced total hedge fund assets by USD471bn while negative performance resulted in an additional USD185bn loss.

For the full year 2008, net investor redemptions and fund liquidations accounted for an outflow of USD512bn and performance losses accounted for an additional USD535bn loss; a total industry asset reduction of 36% or USD1.047 trillion for the year.

"When one considers the magnitude of losses in global financial markets in 2008, it is not surprising that the hedge fund industry, which on an aggregate level likely began the year with a high level of leverage and long exposure, saw this amount of outflow and performance losses," HFN said.

The HFN Hedge Fund Aggregate Average, an equal weighted benchmark of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net database, was up 1.11% in December, although 2008 will go down as the worst year for hedge fund performance in history, after the industry lost 15.27%, according to HFN. However, despite record losses, the average hedge fund significantly outperformed the S&P 500 Total Return Index which was down 37.00% in 2008. The HedgeFund.net database consists of more than 8,200 current hedge fund, fund of funds, and CTA products.

Short biased managers, despite negative performance in December, produced the best hedge fund performance in 2008. The top three hedge fund benchmarks in 2008 were the HFN Short Bias Average (up 32.45%), the HFN Mortgages Averages (up 23.90%) and the HFN CTA/Managed Futures Average (up 12.21%).

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