Hedge Funds Shrink Most Since 2008 as Market Volatility Spikes

  • Managers post an average loss of 4% in the third quarter
  • Macro funds suffered the biggest outflows in the industry

The hedge fund industry shrank the most in the third quarter since 2008 as wide price swings caused by uncertainty over U.S. interest rates and China’s economy led to steep losses.

Assets contracted by $95 billion to $2.87 trillion in the quarter ended Sept. 30, Hedge Fund Research Inc. said in a report Tuesday. That’s the most since the fourth quarter of 2008, when the industry lost $314.4 billion at the height of the financial crisis.

Hedge funds posted an average loss of 4 percent in the third quarter, according to the HFRI Fund Weighted Composite Index, the biggest quarterly decline in four years. Managers were tripped up by the surprise devaluation of the Chinese yuan in August, which pummeled markets, as well as slumping oil and gold prices.

The biggest names in the industry, including David Einhorn and Bill Ackman, posted losses in the period. And firms such as Fortress Investment Group LLC, Bain Capital and Cargill Inc. said they were shuttering hedge funds.

The industry attracted a net $5.6 billion in the third quarter, according to HFR. Event-driven funds, or those that wager on corporate actions such as takeovers and bankruptcies, received $5.4 billion in the quarter, the most of all strategies. Macro hedge funds, which seek to profit on broad economic trends, faced outflows of $5.1 billion, the most in the industry.

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