Dec. 21 (Bloomberg) -- Blue Wave, the hedge fund started by private-equity firm Carlyle Group in March, fell 6 percent last month, hurt by losses on structured credit investments backed by fixed-income assets.

The fund, run by former Deutsche Bank AG executives Rick Goldsmith and Ralph Reynolds, has declined almost 15 percent since opening, according to a Blue Wave investor. Clients have committed $150 million in new cash to the fund. Blue Wave managed $690 million as of Oct. 1.

``The question is whether or not those commitments will stay in place after November performance becomes known,'' said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island, who isn't a Blue Wave client.

Hedge funds dropped an average of 1.9 percent in November, the worst monthly decline in five years, according to data compiled by Chicago-based Hedge Fund Research Inc. Multistrategy funds such as Blue Wave, which bet on price differences between stocks, bonds and other securities, rose less than 1 percent.

Chris Ullman, a spokesman for Washington-based Carlyle, declined to comment.

The average hedge fund has gained 7.7 percent since March, Hedge Fund Research data show. Multistrategy funds returned 6.6 percent.

Industry returns for 2007 probably will fall short of last year's average increase of 12.9 percent. Matching 2006 returns would require a 3 percent increase in December, and funds have posted a monthly gain that big only twice in five years, according to Hedge Fund Research.

Flight to Safety

Blue Wave suffered as investors, spurred by subprime- mortgage defaults, avoided all but the highest-rated fixed- income securities, said the Carlyle client, who declined to be identified because the returns are private.

Carlyle, whose private-equity funds have acquired companies including Home Depot Inc.'s contractor-supply unit and Dunkin Brands Inc., has diversified into real estate, venture capital and hedge funds.

Founded in 1987 by David Rubenstein, William Conway and Daniel D'Aniello, Carlyle manages more than $76 billion. Blue Wave's clients pay fees of 2 percent of assets invested and 18 percent to 20 percent on any gains, according to fund documents.

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. Hedge- fund managers have more than tripled their assets since 2002 to more than $1.8 trillion, according to Hedge Fund Research.

To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: December 21, 2007 11:59 EST