Worst Start Ever For Hedge Funds In ’08?

Sep 10 2008 | 11:53am ET

Hedge funds are off to the worst start in more than 20 years after posting their third straight down month in August.

The Hennessee Hedge Fund Index is down 4.09% year-to-date, after dropping another 0.72% last month. The index has enjoyed positive returns in just three months this year after beginning 2008 with an inauspicious 2.88% drop in January.

“This is the worst start to a year for hedge funds since the beginning of the Hennessee Hedge Fund Index in 1987,” Hennessee Group co-founder Charles Gradante said.

Both global macro and equity long/short funds continued their slide in August, with the former slipping 2.27% (down 7.22% year-to-date) and the latter down 0.22% (down 3.2% YTD). Fifteen of the 23 substrategies tracked by Hennessee were in the red last month, actually an improvement on the year as a whole, as only three of the substrategies are in the black year-to-date.

The worst performers in August included emerging markets—last year’s best performing strategy fell another 3.31% on the month, as is the year’s second-worst performing strategy, down 10.01%—and two emerging regions, Latin America (down 2.65% in August, down 0.53% YTD) and Asia-Pacific (down 2.41%, down 12.72% YTD, the worst performing strategy of 2008). Short-biased funds, the year’s best-performing strategy by far, its 9.37% return more than triple that of its closest competitor, also had a difficult month as equities rallied in August, pushing short funds down 2.61%.

Arbitrage and event-driven funds, by contrast, were able to make money in August, rising 0.31% (down 2.66% YTD). Merger arbitrage was the best-performing substrategy of the month at 1.38% (it’s also the second-best performer on the year, up 3.03%), followed by telecom and media funds (up 1.09%, down 0.57% YTD) and technology funds (up 1.05%, down 2.63% YTD). Event-driven funds added 0.75% in August, but remain down 6.5% on the year.


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