Feb. 8 (Bloomberg) -- Hedge-fund managers who concentrate on picking stocks lost an average of 4.1 percent in January, the biggest monthly decline in more than seven years, as global equity markets tumbled, a Hedge Fund Research Inc. report shows.

Goldman Sachs Investment Partners, which raised a record $7 billion for a new fund, dropped 6 percent in its first month, according to investors. Timothy Barakett's Atticus Global Advisors fund, known for betting on only a dozen or so stocks, fell 12.5 percent.

Traders were caught off guard as the MSCI World Index, which tracks equities across developed markets, slumped 9.5 percent in the first three weeks of January. They were also hurt by repeated price swings, with the Standard & Poor's 500 Index ending up or down by more than 1 percent in 14 of 21 trading days. Stocks moved by 1 percent in one session in January 2007.

``Managers were less cautious going into January, but then there was a pretty fast rude awakening,'' said Bill Grayson, president of Falcon Point Capital LLC, a San Francisco-based investment firm.

It was the worst month for stock hedge funds, which bet on rising and falling stocks, since a 4.3 percent loss in November 2000, when the collapse of technology shares was in full swing, according to a report yesterday by Chicago-based Hedge Fund Research, which tracks industry returns and money flows.

Hedge funds of all categories fell less than major indexes, dropping an average of 1.8 percent last month, according to the firm. The S&P 500 fell 6.1 percent and the MSCI World tumbled 7.7 percent, the worst start to a year since 1990.

Macro, Arbitrage Funds

Macroeconomic funds, which make bets on the direction of interest rates, currencies and commodity prices, outperformed the industry with a 1.7 percent gain. Relative-value arbitrage managers, who try to take advantage of price differences among stocks, bonds and other securities, were little changed. Emerging markets funds dropped 6 percent.

Market volatility was caused in part by the U.S. Federal Reserve's move to cut the target for its benchmark fed funds rate twice in late January to prevent the U.S. economy from sinking into a recession. Fed officials lowered the benchmark rate by 1.25 percentage points to 3 percent. The S&P 500 rallied 4 percent between the first cut and month's end.

Goldman Sachs Group Inc.'s newest hedge fund is managed by traders who previously worked on the company's proprietary equity desk. They are led by Raanan Agus, 40, who had been head of the bank's principal strategies group since 2003, and Kenneth Eberts, 41, who had run U.S. investments since 2003.

Freeport, Conoco

Barakett's New York-based Atticus Capital LP manages more than $21 billion and oversees a portfolio dominated by 15 positions. His largest holding as of Sept. 30 was Freeport- McMoRan Copper & Gold Inc. in Phoenix, the world's second- largest copper producer, which tumbled 15 percent in January. His second-largest holding, Houston-based ConocoPhillips, the No. 2 U.S. refiner, dropped 10 percent.

Atticus Global rose 25 percent last year.

Concentric Capital ASA's $740 million Concentric European Fund lost 22 percent. The Oslo-based firm, run by Peter Jebsen, wagered on about a dozen companies to increase in value, according to an investor. Jebsen, a former stock trader for billionaire investor George Soros, started Concentric in 2002.

Quantitative Investment Management, the Charlottesville, Virginia-based manager with $3 billion in assets, declined 7.8 percent in its QIM Global Program last month, following a 2007 gain of 28.4 percent, according to a monthly client letter.

SocGen's `Massive Unwind'

``The sharp, sudden increase in volatility in the markets, exacerbated by the massive unwind of a fraudulently constructed portfolio of stock indices at SocGen, increased our volatility dramatically,'' according to the letter.

Societe Generale SA, France's third-largest bank, said Jan. 24 that unauthorized bets by 31-year-old trader Jerome Kerviel led to about 4.9 billion euros ($7.1 billion) of losses.

Renaissance Technologies Corp.'s James Simons, who uses computer models to make buy-and-sell decisions, lost 4.3 percent in his Renaissance Institutional Equities Fund. Investors pulled about $4 billion from the fund in the last four months of 2007 after it fell less than 1 percent, lagging behind the performance of its peers.

Horseman Capital

Beating the averages were managers including John Horseman, who runs the $3.6 billion Horseman Capital Management Ltd. from London. The portfolio ended January 5.6 percent higher after Horseman positioned it to profit from falling shares.

San Francisco-based Farallon Capital Management LLC dropped 3.6 percent. Farallon, which oversees $36 billion, invests in real estate and companies facing cash shortfalls or going through mergers or other changes.

Steven Cohen's SAC Multistrategy Fund dropped 2.95 percent in the month. Cohen's Stamford, Connecticut-based SAC Capital Advisors LLC manages about $15 billion.

James Pallotta's Boston-based Raptor Global Fund ended January 2.5 percent lower after it declined almost 5 percent through Jan. 23.

Investors in the funds asked not to be identified because returns are private. Representatives for the managers declined to comment.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net.

Last Updated: February 8, 2008 13:30 EST