Hedge funds see sharp drop in asset value

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E funds suffered a sharp drop in the value of their assets this summer as global market turmoil made it far harder to pick winning strategies.

The average hedge fund fell by 2.8 per cent in September and 5.5 per cent over the quarter, according to Hedge Fund Research. It marked the industry’s worst performance since the height of the financial crisis.

Funds which concentrated on shares in the energy sector fared worst, falling 9.5 per cent last month, taking their losses to 15.5 per cent so far this year

Emerging market funds, particularly those focussed on Latin America and Eastern Europe, have also performed poorly.

Some of the biggest names in the industry have been caught out by bets on the expectation of an economic recovery. The Advantage Plus fund, which is run by industry icon John Paulson and uses some borrowed money to help boost returns, tumbled 19.35 per cent last month, leaving it off 46.73 per cent for the year, the firm told clients.

Paulson is expected to use a conference call tomorrow to explain what went wrong, although one investor said he is not interested in listening to “excuses”.