70 per cent of hedge funds lost money in 2008, says Barclayhedge

Date: Friday, January 23, 2009
Author: Hedgeweek.com

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

'2008 hedge fund losses were widespread, with 70 per cent 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 per cent finishing in the minus column, losing an average of 21.69 per cent.'

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

Only one hedge fund strategy was profitable in 2008. The Barclay Equity Short Bias Index turned in a record gain of 41.09 per cent in 12 months, and jumped 20.83 per cent 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 per cent 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 per cent, Convertible Arbitrage was up 2.86 per cent, Merger Arbitrage gained 1.73 per cent, Pacific Rim Equities was up 1.72 per cent, and Global Macro rose 1.52 per cent.