The tools that have worked so well for hedge funds in recent years—shorting and sophisticated trading models—worked beautifully up until last year, when hedge funds had their worst year on record.

With average declines of 18% in 2008; investors clamoring to redeem billions of assets; about 7% of the industry, or 700 funds, shutting their doors in 2008; and Bernard Madoff’s $50 billion ponzi scheme giving the industry a bad name, the outlook for hedge funds isn’t much better for 2009.

As the Pittsburgh Post-Gazette puts it: “The industry’s fall proves that even the quantitative brilliance and market wizardry of elite hedge funds are no magic bullet for investors during brutal times.”

Bill Fleckenstein, president of hedge fund Fleckenstein Capital, said hedge funds’ “gunslinging,” risky approach was appealing in other markets, but not in a prolonged recession.

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