“In 2008, hedge fund managers generally failed to deliver,” Morningstar Hedge Fund Analyst Nadia Papagiannis said yesterday in a press statement. “The average hedge fund may have lost less than the stock market, thanks in part to large cash allocations, but this level of performance was not why investors agreed to pay 2 percent management fees and 20 percent performance fees.”
Investors “lost their appetite for hedge funds” as the vehicles intended to deliver absolute returns were forced to resort to relative claims of success.
Since May, hedge funds have been on a steady decline, according to Morningstar Inc. Massive losses in September and October of 7.9 percent and 9.8 percent, respectively, quashed any hope of salvaging the year, even though it ended on a positive note — December posted a 2.1 percent gain.
Morningstar also calculates hedge fund indexes according to the MSCI methodology. The Morningstar with MSCI Asset Weighted Hedge Fund Composite index, which hedges U.S. dollar exposure, lost 12.9 percent in 2008, while the equally weighted version lost 16.4 percent, reflecting the poorer performance of the smaller funds.