Hedge Funds Drop $782B In 2008

Jan 21 2009 | 2:57am ET

Hedge fund assets fell by $782 billion in 2008 to $1.21 trillion, a 39% decline since the beginning of 2008 and leaving industry assets at their lowest level since 2006.

The hedge fund industry experienced net redemption outflows of $399 billion, according to the Hennessee Group, the largest outflow in industry history and a dramatic reversal last year’s $278 billion inflow. Another $382 billion disappeared due to negative performance; the Hennessee Hedge Fund Index declined 19.2% last year.

“2008 was the worst year for hedge funds in both redemptions and performance since Hennessee Group Research began recording performance and assets in 1987,” said Charles Gradante, co-founder.  “In addition, a number of high profile funds liquidated or froze redemptions which was a tactic historically employed by hedge funds with smaller capital bases. Compounding the matter further, the industry was hit with its largest Ponzi scheme in history.”
 
Total assets invested in arbitrage and event-driven funds were down approximately 43% last year, when the Hennessee Arbitrage/Event Driven Index fell 18.6%. Arbitrage strategies were greatly affected by the massive deleveraging and volatility in the credit markets, and redemptions would have likely been greater had it not been for many funds instituting gates, according to Hennessee.
 
Long/short equity fund assets fell approximately 36% in 2008, while the Hennessee Long/Short Equity Index declined 18.3%.  Investors in need of liquidity sought capital from their long/short equity investments as their allocations to multi-arbitrage and other potentially illiquid strategies were tied up due to the institution of gates or creation of side pockets. 
 
Global macro funds lost 40% of their assets, with the Hennessee Global/Macro Index falling 20.2% for the year. Global macro funds with exposures to the international markets, particularly the emerging markets, suffered extreme sell-offs and endured the most redemptions within this category in 2008.


In Depth

Debunking Conventional Investment Wisdom

Feb 8 2017 | 3:22pm ET

Due diligence in the hedge fund world has long involved some combination of the...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

iCapital Network: The Trump Effect On Direct Lending

Feb 23 2017 | 4:21pm ET

The arrival of the Trump Administration has raised questions among private debt...