Hedge Funds Fall In September

Oct 7 2011 | 2:20pm ET

Hedge funds closed out one of their worst quarters ever with one of their worst months ever. The average hedge fund fell well in excess of 3% last month, according to a pair of industry benchmarks.

The Hennessee Hedge Fund Index dropped 3.7% in September and the Credit Suisse Liquid Alternative Beta Index 3.41%. While neither decline is as bad as that of the Standard & Poor's 500 Index, which shed 7.2% on the month, they leave hedge funds solidly in the red for 2011; the Credit Suisse index is down 4.36% on the year.

"Managers are looking for market transparency and stabilization before getting reinvested," the Hennessee Group's Charles Gradante said. "Consequently, their reactive cash and net exposures present relative 'whiplash' performance risk should there be a sharp equity rally in the fourth quarter."

On a strategy basis, no hedge funds were harder hit than event-driven offerings, which lost an average of 5.13% in September (down 6.98% year-to-date), according to the Credit Suisse indices. Long/short funds weren't far behind with a drop of 4.39% (down 4.75% YTD). Global strategies shed 2.41% on the month (down 3.04% YTD) and merger arbitrage funds 0.8% (up 2.07% YTD), while managed futures funds managed a positive return, rising 2.71% (0.66% YTD).

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