Hedge funds lost an average of 18.4% in 2008, according to early projections by the Hennessee Group. However, given that the Standard & Poor’s 500 Index declined 37% in 2008, hedge funds “significantly outperformed equity benchmarks on a relative basis,” said Hennessee Managing Principal Lee Hennessee.

“While not an attractive absolute return, many investors are thankful to have hedge fund allocations this year,” Hennessee added.

That said, 2008 was the worst year on record since 1987 for hedge funds’ performance; in 2002, the previous record, hedge funds lost a mere 2.89%.

The losses are forcing “many hedge fund managers to struggle to retain investors and their capital bases,” added Hennessee Principal Charles Gradante. “In 2008, we have seen dramatically more hedge funds freeze redemptions/enact redemption gates and force liquidate that in the history of the industry.”

Redemptions at the end of the year could eliminate between 15% to 25% more of hedge funds’ assets, he predicted.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.