Investors joining hedge fund club get burned

By Joseph A. Giannone

NEW YORK (Reuters) - Two years ago, investors scrambled to snap up shares in elite hedge fund firms, eager for a piece of the lucrative action. What they got instead were big losses.

Starting in early 2007, when hedge fund and private equity firms were minting cash, four private investment firms cracked open the door to let in small investors. Fortress Investment Group LLC (FIG.N), Och-Ziff Capital Management Group (OZM.N), Blackstone Group LP (BX.N) and GLG Partners Inc (GLG.N) led a new class of firms that let ordinary investors ride the wave of hedge fund riches.

In retrospect, it turned out to be a classic case of 'buy high, sell low' as the worst financial markets in decades rocked Wall Street and the funds business.

"Over the two years they've been public, their performance has just been abysmal. Investors who went in at the beginning have been rocked by what's gone on in the broader market," said Jackson Turner, a funds company analyst at Argus Research.

"It really calls into question the wisdom of these companies going public in the first place."

The average hedge fund lost 23 percent last year, according to data from Hedge Fund Research -- with some firms losing more than 60 percent -- as crumbling markets and a wave of client redemptions took their toll.

And those who arrived late to the party suffered the biggest hangovers. Fortress shares lost 92 percent last year, while Och-Ziff shares plunged 80 percent.

Emblematic of the woes across the hedge fund industry, Fortress funds plunged in value and clients demanded their money. The New York firm suffered 45 percent client redemptions before they blocked the exits last month."