(Adds details from letter to investors, market background)
By Trevor Hunnicutt and Svea Herbst-Bayliss
Feb 12 (Reuters) - BlackRock Inc's $1.9 billion Obsidian hedge fund recorded losses in January, suffering its worst start to the year in its nearly 20-year history, but the fund was narrowing those losses so far in February.
Through Jan. 31, the fund posted a negative 4 percent return, according to an estimate the hedge fund provided to investors, a copy of which was seen by Reuters.
Led by Stuart Spodek, Obsidian has narrowed the January losses, showing a negative 1.5 percent year-to-date return through Feb. 5, according to HSBC data.
The funds' global government and corporate credit strategies suffered under the weight of markets' heightened fear of economic risks in January.
"We underestimated the extent to which markets would trade in lockstep with commodities," the letter said. "We underestimated the sharp and broad risk aversion in response to declining oil and weakening data."
The fund seemed to be caught off guard by heightened global economic risks and markets' new estimation that the U.S. Federal Reserve will slow its pace of policy-rate increases. The letter said the fund's overseers still see "recessionary fears" as "inconsistent with current fundamentals."
BlackRock declined to comment, and an explanation of the performance so far in February may not emerge until next month.
But the fund reduced its exposure to corporate credit and European interest-rate risks during as the month went on, according to the letter, whose contents were first reported by Bloomberg.
Last year, the Obsidian Fund - which started in 1996 - was down 0.14 percent for the year. (Reporting by Trevor Hunnicutt in New York and Svea Herbst-Bayliss in Boston; Editing by Matthew Lewis)