"It is taking longer to work out the subprime mess than most people anticipated," said Sol Waksman, who heads hedge fund research group BarclayHedge said. "The subprime mess started in the fixed income markets but now it is a problem in the stock market and not just the U.S. markets."
In August the average hedge fund lost 1.37% with funds specializing in emerging markets suffering the biggest losses. The HFRI Emerging Markets Index fell 5.02%.
Recently commodities oriented hedge fund Ospraie Fund said it would shut down following a 39% decline through the first eight months of the year.
Meanwhile, the Hennessee Hedge Fund Index is down 4.09% year-to-date, after dropping another 0.72% last month.
“This is the worst start to a year for hedge funds since the beginning of the Hennessee Hedge Fund Index in 1987,” Hennessee Group co-founder Charles Gradante said.
The worst performers in August included emerging markets - last year’s best performing strategy fell another 3.31% on the month, as is the year’s second-worst performing strategy, down 10.01% - and two emerging regions, Latin America (down 2.65% in August, down 0.53% YTD) and Asia-Pacific (down 2.41%, down 12.72% YTD, the worst performing strategy of 2008).
Greenwich Global Hedge Fund Index ("GGHFI") and the Greenwich Composite Investable Index ("GI2") also lost ground in August, posting losses of -1.18% and -1.33%, respectively. Year-to-date, the GGHFI and the GI2 have shed -4.12% and -3.13%, respectively.
"The lack of market direction and continued uncertainty in credit markets is certainly evident in the results of hedge funds this month, " notes managing director Margaret Gilbert.
Market Neutral managers were the best performing group of hedge funds for the month, shedding an average of -0.70%.
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. In a sign of the changing dynamics between hedge funds and their investors some funds are offering to cut their fees in a bid to stop investors withdrawing funds.
Camulos Capital last week asked investors to promise to keep nearly $2bn with the firm for another year as part of a restructuring. The hedge fund said it would take a 1.25% management fee, instead of the standard 2% fee, on most assets. If the fund makes money starting Oct 1 through 2010, the firm will keep 10% of most profits, not the 20% that Camulos investors had previously agreed to pay, the letter said.
Meanwhile, Ore Hill Partners LLC, a New York money manager with about $2.8 bn in hedge-fund assets, has offered a sliding scale of fees depending on how long investors would commit money to its Ore Hill International Fund Ltd.