Figures confirm 2008 hedge fund losses

The hedge fund industry concluded 2008 with investors withdrawing a record $152 billion in capital in the fourth quarter of 2008, according to data released by Hedge Fund Research. The HFRI Fund Weighted Composite Index fell by 18.3% percent for all of 2008, only the second calendar year decline since 1990.

This capital outflow followed a record year of capital inflows in 2007, during which $194 billion of new capital came into the industry. When combined with the negative performance-based asset flow, total capital invested in the hedge fund industry declined to $1.4 trillion at the end of 2008, a decline of $525 billion from the peak of $1.93 trillion, recorded at mid-year 2008.

Investor redemptions were widespread and indiscriminate across fund strategies, regions, asset sizes and performance dynamics.

Dislocations and sustained volatility across financial markets contributed to record dispersion between individual funds and between fund strategies in 2008. The bottom 10% %of all funds declined an average of 62%. The top decile of all hedge funds gained an average of 40%. The HFRI Equity Hedge Index declined 26% for the year with $55 billion in capital withdrawals from the strategy. The HFRI Macro Index gained 5% for the year. Macro funds still experienced net redemptions of $31 billion.

The HFRI Equity Hedge: Short Bias Index gained nearly 29% and HFRI Macro: Systematic Diversified Index was up nearly 18% for the year. Nonetheless, both of these sub-strategies experienced investor withdrawals and fund liquidations in the second half of 2008.

"Investor risk aversion remained at historically extreme levels through year end, even as implied and realized asset volatility moderated," said Kenneth Heinz, president. "The hedge fund industry has returned an average of 11.8% annually since 1990 and an average 15.9% in the 12 months following the five largest historical declines. While we expect continued asset consolidation, the combination of improving credit markets combined with an unprecedented level of global financial stimulus, are likely to be supportive of industry performance in 2009," concluded Heinz.