Some Interesting Statistics on Hedge Funds

Hedge funds lost on average 18.7% in 2008 according to Hedge Fund Research, Inc., which, along with increased redemptions, decreased total assets managed by hedge funds from $1.9 trillion at the beginning of 2008 down to $1.1 trillion by the end of the year. Even more money would have been withdrawn by investors, if some of the hedge fund managers hadn't prevented them from doing so by invoking gates, which are contractual limits on the amount of money that can be withdrawn within a certain period.

Global macro funds have fared best during the Great Recession, making money on currencies, interest rates, futures, and equities by predicting market trends according to their world economic analysis. These funds gained 5% in 2008, when the S&P 500 lost 40%. However, these funds lagged the market from 2002 to 2007 by an average of 2.7%, which probably accounts for their decreased market share of 11% by the end of 2007. The main benefit of global macro funds is that they do not use leverage, or borrowed money, for their results, which helped them achieve good results in 2008 when almost every other fund was down. The other main advantage to global macros is that asset size is not a concern since the currency market is so huge, and because derivatives are based on the value of the underlier. Stocks and bonds, on the other hand, have a much smaller float, so their prices vary more with smaller changes in the supply and demand of the security.

At the beginning of 1994, 65% of hedge funds were global macro funds, according to Credit Suisse Group AG's AES subsidiary, while long-short funds were 15%, and event-driven funds constituted 7.4%. Long-short funds make money by buying long or selling short. They increased their market share, to 29% at the end of 2007, after trading costs declined on the decimalization of stock prices and especially after the stock market bubble burst in 2000, advertising that they could make money whether the market was moving up or down. However, they lost on average 28% in 2008. Event-driven funds try to make money by forecasting market movements based on major corporate events, such as earnings surprises or corporate restructurings, and increased their market share to 24%. In 2008, these funds lost an average of 21.5%.