Hedge Fund Winners and Losers 2008

In the article "Hedge Funds suffer worst losses but beat markets" there is a good round up of the highs and lows of hedge fund performance in 2008. If you look at the trends Hedge Funds should give better returns than the markets by definition but are not necessary profitable. If they had not beaten the markets one would have to assume their "hedging" either was non-existent or badly formulated.

The average loss of 18-19% loss depending on your source is probably too high as these will be composed of both liquid but more importantly illiquid instruments which if they were to realise the value of these would make their P and L look much worse.

On a more positive note though there have been some great successes for those who foresaw the giant bubble bursting. Some of the biggest winners were making 28%-40%. The key for them has probably been staying liquid and realising that debt was mispriced.

Although some commentators foresee investors fleeing hedge funds, investors are always looking for that extra return and so yes we will see consolidation, yes we will see many go to the wall, and hopefully yes we will see greater due diligence. However they are not going to disappear completely and if they have good risk management and good investor relations they should be able to ride this crisis out.