The latest from the opaque land of hedge funds indicates that most of the giants recorded major losses this year. The really scary part is that the latest data available for the year only goes to September and the odds are slim that their situations improved in October.

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Losses rip through top 100 hedge funds

Wealth Bulletin

4 November 2008 - David Walker and Stephanie Baum in New York

More than three-quarters of the world’s largest hedge fund managers have lost money for their investors in the first nine months of the year as crisis deepens in the industry.

None of the world’s five largest managers’ flagships funds has made money for the year to September, according to details supplied by investors. Of the 79 of the world’s 100 largest hedge fund managers where Financial News has been able to obtain details, 61 of them, or 77%, have flagship funds that have lost money for that period.

The flagship fund run by Highbridge Capital, the world’s largest hedge fund manager at the start of the year with assets of almost $45bn, and which is owned by JP Morgan, was down 13.9% for the year to September. The pure alpha strategy fund run by the second largest manager, Bridgewater Associates, which started the year with $36bn, was down 1.78% over the same period.

Farallon Capital Offshore was off 16%, Renaissance Institutional Equity has fallen 24% and Och-Ziff overseas was down 5.8%.

The hedge fund industry has seen its assets fall from a peak of $1.9 trillion at the start of this year to $1.72 trillion at the end of September, according to data provider Hedge Fund Research, through a combination of investment losses and redemptions from investors.

Hedge Fund Research’s non-investable hedge fund index recorded an investment loss of 10.11% for the first three-quarters of the year, their worst nine-month period since the data provider’s records began in 1990.

Hedge Fund Research’s investable index lost 9% in October, its worst-ever monthly return.

Last year, of the world’s 100 largest managers, only eight of the 77 where Financial News obtained details made a loss on their flagship fund; the previous year, the proportion was only 3 out of 80; the year before that, the proportion was none out of 77.

Nicola Ralston, co-founder of investment consultant PiRho Investment Consultants, said: “Just because you’re with a big name, it does not mean you’re any more protected in terms of returns. You are not more protected by scale or brand.

“It can be better to look to firms for whom hedge funds are a core expertise, and so getting it right is a matter of survival, rather than them thinking they can shut the hedge fund business down because it won’t hurt their core franchise.”

Aoifinn Devitt, founder of UK consultant Clontarf Capital, said the industry had moved this year from “discomfort, punctuated by a blow-up here and a blow-up there, to a full-blown existential crisis.”

JP Morgan declined to comment. Bridgewater, Farallon, Renaissance Och-Ziff did not return calls inviting comment.