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Hedge Funds Lost Record 18.3 Pct. In 2008

Hedge funds suffered their worst year ever in 2008, as the private pools of capital lost 18.3 percent of their value, according to Hedge Fund Research's composite index of funds.

Hedge funds, which require a large minimum investment (say, $1 million), are used by wealthy investors to bet on rising and falling asset prices, by aggressively taking long and short positions.

In 2008, analysts say, hedge funds bet badly.

“Hedge funds failed to appreciate the magnitude, breadth and duration of the declines we saw across most markets,” Michael Rosen, principal at Angeles Investment Advisors LLC in Santa Monica, California, told Bloomberg.

By the end of the year, the total value of all hedge funds was $1.1 trillion, well off the year high of $1.9 trillion, hit in June. (The funds are down 18 percent from the beginning of 2008, not from the June high.)

Hedge funds were hit by a double-whammy in 2008: Losses caused by the market crashes and withdrawals by clients who wanted to put their money in safer, albeit lower-return, investments, such as Treasuries. And burying it in the backyard.

As a result, some hedge funds cut off redemptions, a process known colloquially as "lowering the gates."

Some hedge funds were casualties of 2008: Through the first three quarters of 2008, 693 funds closed their doors, Hedge Fund Research said. At the same time, 603 new funds opened up, leading to a net loss of 90 funds through the first nine months of last year.

If there was any good news on the hedge fund moonscape of 2008, it's that in December, according to the index, the value of hedge funds ticked up .42 percent, ending a six-month losing streak.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  January 8, 2009; 4:35 PM ET
Categories:  The Ticker  | Tags: hedge funds  
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