Investment Banks, Hedge Funds, and Private Equity, 2nd Edition

15

Hedge Fund Performance and Issues

Hedge Fund Performance

The year 2008 was a watershed year in the hedge fund industry. Assets under management (AUM) by hedge funds dropped to unprecedented levels and the concept of managing for absolute returns (positive returns) was, in part, invalidated by significant losses (see Table 15.1). As a result of these losses, investor withdrawals increased substantially. This withdrawal activity, combined with reductions in asset values, resulted in a drop in AUM by approximately 25%, from almost $1.9 trillion at the end of 2007 to just over $1.4 trillion by the end of 2008. Part of the problem during 2008 was that too many funds bought the same assets. As markets fell, many hedge funds sold these assets to gain ...