Structured Credit Hedge Funds Battered In ‘08

Feb 17 2009 | 1:28am ET

Structured credit hedge funds did not weather the credit crisis at all, with the average fund losing about 40% last year.

The Palomar Structured Credit Hedge Fund Index fell 39.48% in 2008. The index was particularly hard-hit in the final four months of the year, losing 6.16% in September, 4.25% in October, 5.99% in November and 0.74% in December. But even that dismal record pales in comparison to the 17.15% drop suffered in February, mostly due to the collapse of a Peloton Partners asset-backed hedge fund.

“Structured credit got terribly hit; liquidity was virtually non-existent,” Markus Kroll of Palomar Financial Services Group told Reuters. But, he added, “there a few funds that have done really well.”

Those funds are finding their peers fewer and farther between: Many structured credit funds went under last year; the Palomar index had just 19 constituents at the end of last year, down from 30 at the end of 2007 and 40 in July 2007.

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