Worst Month Ever? Hedge Funds Shed 9% In Oct.

Nov 6 2008 | 11:57am ET

Legions of hedge fund managers had good reason to be scared on Halloween, as October is shaping up to be one of the worst months in the history of the hedge fund industry.

The average hedge fund was down by almost double-digits last month, according to Hedge Fund Research. The HFRX Global Hedge Fund Index lost 9.26% in October, almost doubling its year-to-date loss to 19.79%. Worse still, three of the eight strategy indices tracked by the HFRX indices posted double-digit losses, with another coming as close as possible without cresting that unlucky barrier. Just two of the eight strategies remain in positive ground on the year.

Convertible arbitrage funds were far-and-away the worst strategy, and had possibly the worst month ever for hedge funds, losing 34.68%. The woeful strategy is now down 50.65% on the year.

Joining convertible arb. in October’s Hall of Shame are relative value arbitrage and distressed securities funds, which lost 14.11% (down 30.32% YTD) and 11.69% (down 18.68% YTD), respectively. Barely missing a double-digit loss were equity hedge funds, which fell 9.99% on average in October (down 22.24% YTD).

Equity-market neutral hedge funds lived up to their name during October’s volatility, returning 0.19%, the only positive return for any HFRX index. The strategy is now up 0.3% on the year. The only other positive performer of 2008, macro at 1.29%, also posted the smallest loss of the month at 1.27%.

Event-driven funds lost 7.53% on the month (down 19.28% YTD), while merger arbitrage funds fell 1.28% (down 0.12% YTD).

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