Hedge funds suffered steep September decline

Hedge funds are absorbing their share of the market woes, according to the latest performance data from Hennessee Group LLC in New York, which show a 6.2% decline for the alternative strategies in September. That drop in the Hennessee Hedge Fund Index compared with a 9.1% decline by the Standard & Poor’s 500 stock index over the same period. Through the first nine months of 2008, the hedge fund index was down 10.3%, while the S&P 500 dropped 20.6%. The Lehman Aggregate Bond Index fell 1.3% in September but stayed in positive territory over the previous nine months, with a 0.6% gain from the start of the year. Overall, the hedge fund industry’s September performance was characterized by Hennessee Group co-founder Charles Gradante as “the worst month for hedge funds in over a decade.” He cited the new restrictions on short selling as one cause of the industry’s poor performance. “The ban on short selling caused significant losses across most strategies and required funds to alter their trading models,” Mr. Gradante said. However, the short-biased-index subcategory has been a lone bright spot for hedge funds even with the Sept. 19 ban on short selling for more than 800 banks and related financial companies. Through the first nine months of the year, that category was up 10.1%. In September, short biased was the only one of 23 subcategories to finish in positive territory, with a 1.8% gain. The worst-performing subcategory in September was event-driven, which fell 12.4% during the month and was down 17.7% through the first nine months of 2008.