Hedge Funds Lost $85 Billion In 3rd Quarter

The third quarter was the fourth worst ever for hedge funds as market volatility triggered a net loss of $85 billion for the industry in the three months ended September 30th, according to data provided by Hedge Fund Research, an industry tracking service. The group’s HFRI Fund Weighted Composite Index, which measures the performance of all US hedge funds, fell more than 6 percent, making it the worst quarter for the sector since 2008’s fourth quarter, at the height of the recession, and the fourth worst on record.

During the quarter, many hedge funds suffered the evaporation of gains made during the first half of the year, and hedge funds are now down an average of 5.4 percent for the year, according to the report. Stocks, binds, commodities and equities performed so erratically during the period that even the industry’s top managers like John Paulson suffered drastic losses. Paulson’s Advantage Plus Fund, his primary investment vehicle, has lost more than 30 percent of its value this year.

Despite the losses, however, about 40 percent of hedge funds are still drawing in client’s money, with the industry attracting some $8.7 billion during the quarter. As hedge fund managers attempt to regroup after the dismal quarter, experts say they will take two distinct paths. Some funds will maintain status quo, hoping to rebound in the fourth quarter with the stock market, while others will shift their assets to protect themselves from future market volatility, sacrificing potential profits if there is a rebound.