The financial media has, for the last month, regularly mentioned poor performance and high redemptions at individual hedge funds, and stories that a lot of players had taken significant losses. While those reports sound entirely plausible, they are nevertheless anecdotal.
Bloomberg tells us that a hedge fund indexes, which track performance systematically, are confirming the rumor mill, namely, that the industry had a miserable September.
Hedge funds worldwide posted record monthly losses in September as short sale bans and client redemptions amid the credit crisis hurt funds including Citadel Investment Group Inc., according to Eurekahedge Pte.
The Eurekahedge Hedge Fund Index, which tracks 2,431 funds that invest globally, declined 4.7 percent, preliminary figures from the data provider show. The drop is the biggest one-month loss since the firm began collecting data in 2000 and the index, down 7.9 percent through September, is set for its worst year on record.
“The volatility has been difficult even for seasoned veterans to manage; one day the markets plunge on apocalyptic fundamentals, and the next day they surge,” said Robert Howe, founder of Hong Kong-based hedge fund manager Geomatrix (HK) Ltd., which oversees $32 million. “As many managers just liquidate to wait out the storm, or clients do it for them, money drains out of all investment strategies.”
Hedge funds have suffered from financial market contagion triggered by the collapse of the U.S. subprime mortgage market last year, losing about $88 billion of assets on investment declines and investor withdrawals in September. That’s reduced the industry’s total size to about $1.8 trillion, according to Singapore-based Eurekahedge.
Citadel Investment’s biggest hedge fund fell as much as 30 percent this year because of losses on convertible bonds, stocks and corporate debt, two people familiar with the Chicago-based firm said earlier this month.