Hedge funds disappoint again

Hedge funds suffered another body blow in December when, according to one index, the S&P 500 stock index outperformed the alternative class strategies.
JAN 08, 2009
Hedge funds suffered another body blow in December when, according to one index, the Standard & Poor’s 500 stock index outperformed the alternative class strategies. The Hennessee Hedge Fund Index gained 0.51% for the month, while the equity benchmark S&P 500 gained 0.78%. The Barclays Aggregate Bond Index gained 3.73% in December. For the entire year, hedge funds did better than the broader equity market, declining 19.15% while the S&P lost 38.49%. The bond index finished the year up 5.24%. “On a relative basis, hedge funds continue to prove themselves as an attractive asset class, generating a better risk-adjusted return than traditional money management,” said Lee Hennessee, managing principal of Hennessee Group LLC in New York. “Investment committees are revising their mandates to increase allocations to hedge funds,” she said. By most measures, the $1.5 trillion hedge fund industry is coming off its worst year ever. Through the first nine months of 2008, 693 hedge funds shut down, representing a 70% increase over the 408 funds that were liquidated during the same period in 2007. Full-year numbers aren’t yet available for fund liquidations, but at the end of the September the industry was on pace to break the 2005 record of 848 fund closings. Industrywide, hedge funds lost almost $500 billion through the first nine months of 2008, including $210 billion during the third quarter, according to Hedge Fund Research Inc. of Chicago.

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