Hedge funds flail in third quarter

Hedge fund data-gatherers have started rolling out the grim numbers from September, a month being dubbed the worst month in the history of the shrinking industry. Steep performance declines, combined with investor redemptions, reduced the size of the industry by $210 billion during the third quarter, according to Hedge Fund Research Inc. of Chicago. The total decline in industry assets for the quarter ending Sept. 30 exceeds the $194 billion in investor inflows for all of 2007. It was the largest-ever quarterly decline for hedge funds, according to HFR. Hedge fund assets total $1.7 trillion, HFRI estimates. EurekaHedge Ltd. in New York reported similar, but slightly less severe, third-quarter declines. According to the database, the hedge fund industry lost $155 billion over the past three months; with 72% of that amount being attributed to declining performance. EurekaHedge estimates assets in the hedge fund industry to be at $1.8 trillion, down from $1.9 trillion at the start of the year. “The current financial crisis presents many similarities to the financial crisis in 1998, certainly as it pertains to the hedge fund industry,” Kenneth Heinz, president of HFR, said in a statement. The HFRI Fund Weighted Composite Index fell by 8.8% in the third quarter, and is down more than 10% from the start of the year. This compares to a third-quarter drop of 4.4% by the Dow Jones Industrial Average. The Dow was down 18.2% this year through the end of September.