August is shaping up to be the worst month for hedge funds in seven years and almost the worst since the failure of Long-Term Capital Management in 1998, as almost all hedge strategies failed to perform.
The average hedge fund was down 3.2 per cent with one trading day left in the month, according to Chicago-based Hedge Fund Research, after a sharp recovery in the past two weeks. This is the worst performance since November 2000, when hedge funds fell 3.5 per cent.
"A manager who is flat in August looks like a hero at this point," said Yannis Procopis, deputy chief investment officer at CMA, a $2.6 billion (€1.9 billion) fund of hedge funds.
Poor performance at hedge funds frequently leads investors to withdraw money, which can prompt a spiral of decline in markets as highly geared funds are forced to sell investments to meet redemptions. But it remains unclear how much is being withdrawn.
Hedge funds - mainly offshore investment vehicles designed to make money whatever markets do - suffered as concerns about US subprime mortgages caused wild swings in stock markets. But after a disastrous start to the month, when several computer-driven quantitative equity funds plummeted 30 per cent or more, the sector staged a comeback.
Equity long-short hedge funds, the biggest sector, were hit badly. Many were down 10 per cent by mid-August.
