The hedge fund industry lost 7 percent of funds in the first three quarters of 2008, the Associated Press reports. That’s up more than 70 percent from the same period a year before, and more funds are expected to fall in 2009.
After peaking in June at $1.93 trillion, hedge fund assets have since fallen to $1.56 billion. AP cites Hedge Fund Research: “The average hedge fund lost 18 percent of its value in 2008, the industry’s worst performance on record and down from an average gain of 9.96 percent in 2007.” The industry’s only other negative year was 2002, when funds lost an average 1.45 percent.
And investors are nervous; they pulled $40 billion out in October, AP writes. Some funds have since raised “gates” to keep investors from withdrawing their money and killing the fund. According to Barclays Capital strategist Robert McAdie, 70 to 80 percent of hedge funds could disappear in 2009.
The funds that survive will probably make major changes to their structure, like charging lower fees to investors and a more back-to-basics investment philosophy that will lead to smaller annual returns, AP reports.