The Morningstar 1000 Hedge Fund Index declined 7.87% in September, its largest one-month decline since its inception in January 2003. In the third quarter, the index declined 13.17%.
In addition, the Morningstar Global Equity Hedge Fund Index gave up 11.22% in September, and the Morningstar Europe Equity Hedge Fund Index tumbled by 9.62%. The best-performing hedge fund category in September was one that focused on fixed income, currencies and commodities; thus, the Morningstar Global Trend Hedge Fund Index declined by only 1.26% in Septemebr.
In September, the financial world as we know it turned upside down, said Morningstar Analyst Nadia Van Dalen. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging and trading conditions, while liquidity dried up and volatility skyrocketed.
Morningstar also noted that the temporary ban on short selling and an increase in the price of credit default swaps adversely affected hedge funds.