Hedge funds lose 19 percent in 2008 but beat market
Hedge funds suffered their worst year in 2008, losing an average 19.2 percent that was still less steep than the 38 percent drop for the average stock mutual fund, data released today showed.
The average hedge fund also broke into the black in December, gaining 0.51 percent for the month, according to the final data compiled by New York consultants the Hennessee Group. This was the first gain since May.
Other companies tracking the performance of the loosely regulated hedge fund industry plan to announce their numbers in the next few days.
At the end of October, industry analysts estimated that hedge funds managed $1.56 trillion, but they expect the number to be much lower now, possibly closer to $1 trillion.
Hedge funds have been hammered by the worst global financial and economic crisis since the Great Depression. These investments, which have long promised to make money in all markets, lost billions for wealthy investors, endowments and pension funds last year.
But the data illustrate how aggressive trading techniques -- ranging from selling stocks short to using borrowed money -- gave the hedge funds' wealthy clientele an edge over the stock mutual fund portfolios used by the vast majority of American workers to save for retirement and college.
The average hedge fund beat both the Standard & Poor's 500 stock index, which dropped 37 percent last year, and the average stock mutual fund, which lost 37.5 percent, according to data from Thomson Reuters unit Lipper Inc.
But the hedge fund industry's losses have sparked an exodus by investors who are demanding their money back, forcing funds to return between 15 percent and 25 percent of investors' assets last year, said Charles Gradante, a founder of the Hennessee Group.
"Combined with negative performance and complete liquidations, the entire hedge fund industry started 2009 at close to 50 percent of the capital it was at the beginning of 2008," he said.
Declaring 2008 the "worst year by far," Hennessee analysts said the industry's second-largest annual loss had occurred in 2002, when the average fund lost 2.89 percent. Hennessee Group has tracked the data since 1987.
Many hedge funds suffered heavy losses both at the start of 2008 and in the September quarter, when they were throttled by gyrating stock markets and Lehman Brothers' collapse.
But the numbers may not paint a complete picture. Most funds are not required to report their returns publicly. And while thousands of hedge funds tell industry trackers like the Hennessee Group, Hedge Fund Research, and BarclayHedge about their returns, some prominent funds that have lost nearly half of their capital last year do not provide the information.
For example, Citadel Investment Group's preliminary numbers show that its flagship hedge fund lost roughly 50 percent in 2008, according to an investor who asked not to be identified. In 2007, the fund generated returns of around 30 percent. (Reuters)
Who cares if they beat the market. The only reason to pay 2 and 20 in up markets is so that YOU DO NOT GO DOWN 20% ever....
Hedge funds did not "beat" the market. These investment schemes which charge an onerous annual fee 2% plus 20% of profits, are billed as absolute return strategies. In other words, they are paid the big bucks to beat the returns of cash, not the "market". They failed miserably, thus revealing that there is no such thing as "smart money". Next.
My base line is any bank's money market deposit account up to $250,000 now. Feeling good about beating the S&P is inappropriate given the vast amount these "professional" advisors have lost for their clients.
This headline lures one into a non-story. A 19 per cent loss? Then the next to last paragraph tells us that "Most funds are not required to report", and that some "prominent funds have lost nearly half of their capital last year". Plus, how many went the way of Bernie Madoff? Please, this could never be interpreted as reporting.
Comments are moderated and must be approved before publishing.