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70% of Hedge Funds Lost Money in 2008; Average Fund Plunges 21.44% in 12 Months

“2008 hedge fund losses were widespread, with 70 percent 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 percent finishing in the minus column, losing an average of 21.69 percent.”

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%.

Click here to view five years of Barclay Hedge Fund Index data, or download 11 years of monthly data.

Sol Waksman is an experienced media source, providing perspectives on hedge fund and managed futures trends. For quotes, commentary or background, call 641-472-3456 or email swaksman@barclayhedge.com.

BarclayHedge (formerly The Barclay Group) was founded in 1985 and actively tracks more than 6,600 hedge funds, funds of hedge funds, and managed futures programs. Barclay has created and regularly updates 18 proprietary hedge fund indexes and eight managed futures indexes.

Institutional investors, brokerage firms and private banks worldwide utilize BarclayHedge data as performance benchmarks for the hedge fund and managed futures industries.