Hedge funds stumble in first half of '08

By David Ellis, CNNMoney.com staff writer

Hedge funds delivered their worst performance on record during the first half of 2008, revealing that the industry has not been immune to the broader market turmoil.

As a group, hedge funds declined 0.68% through the end of June, and are down 0.75% so far this year, according to numbers published this week by industry tracker Hedge Fund Research.

The figures represent the worst first-half of the year performance for the industry since the research group began tracking returns in 1990.

While hedge funds' sluggish performance is troubling for an industry known for delivering sky-high returns year in, year out, the decline is far better than the broader market has fared.

During the first half of the year, the 30-stock Dow Jones industrial average tumbled 14.4%, while the broader S&P 500 declined 12.8%, as stocks have fallen ill on a dangerous brew of mortgage woes, soaring commodity prices, a declining dollar and weakness in the broader U.S. economy.

Despite the difficult market climate, hedge funds were still alluring to investors. During the first three months of the year, hedge funds attracted $16.4 billion in net assets. That's down both from the same period a year ago, when the industry attracted $60.22 billion, and the fourth quarter of 2007 when net asset flows reached $30.46 billion.

Still, if the market conditions persist, the hedge fund industry could endure more liquidations. During the first quarter, 170 funds folded. Right now, Hedge Fund Research anticipates that number to climb to 679 by year end.


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