Contributing Factors To Hedge Funds' 2008 Failure

Credit Suisse Tremont Index LLC released a new research piece, 'One for the History Books: Hedge Fund Performance in 2008', a review of the factors which contributed to hedge funds’ dismal -19% return in 2008

The report discusses the impact of events such as the fall of Lehman Brothers, the short sale ban and the scandal surrounding Bernard Madoff, offering insight into the impact of each event on individual sectors and the hedge fund industry as a whole. The piece also offers some comparisons to past market downturns, periods in which strategies saw severe declines in assets under management and how performance was impacted in the years that followed.

Some key takeaways from the report include:

The Broad Index, a diversified, asset weighted hedge fund index comprised of 496 underlying hedge funds (as of December 31, 2008), was down 19% for the year, marking 2008 the worst year in the history of the Broad Index.

It is estimated that the hedge fund industry lost approximately 29% of assets in 2008, totaling $582 billion, representing the first time in six years that the hedge fund industry has seen net asset losses.

One in five funds within the Broad Index posted positive returns for the year, with almost one in seven posting returns in the double digits.