Hedge funds suffer worst losses, but beat markets

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge funds suffered their worst full-year loss ever in 2008 and some of the industry's biggest stars took a beating but their decline was less steep than the 38 percent drop for the average stock mutual fund, data released on Thursday showed.

The average hedge fund lost 19.2 percent last year according to data from New York-based consultants the Hennessee Group, and 18.30 percent according to Chicago-based Hedge Fund Research (HFR).

Funds of hedge funds, which promise to build a portfolio of individual hedge funds to spread the risk, fared the worst of all, losing 19.97 percent, HFR said, citing exposure to accused financial swindler Bernard Madoff as a major reason for the losses.

Richard Perry's $8.3 billion Perry Partners International fund lost roughly 24 percent last year while Dan Loeb's $2.6 billion Third Point Offshore fund ended 2008 down 32.18 percent, according to people who saw their numbers.

Loosely regulated hedge funds portfolios did snap a six-month losing streak with tiny gains in December. Final data compiled by Hennessee showed the average hedge fund edged up 0.51 percent last month while HFR data showed a 0.41 percent gain.

The main driver behind the year's losses was the 36.93 percent drop posted by funds specializing in energy and basic materials trading. Funds specializing in fixed income convertible arbitrage lost 34.61 percent, according to HFR.

Emerging market funds, which once performed so well, lost money with the Emerging Markets (Total) Index down 36.23 percent, HFR said.

SOME WINNERS