GLOBAL - Hedge funds are now down a modest 1.2% for this year after a 2.3% loss in last month's turbulent markets, concentrated among equities and event-driven strategies, eliminated hard-won gains up to July.
August's figure, registered by data monitors Hedge Fund Research, was the industry's sharpest fall since May 2010, at the early height of the eurozone's debt crisis.
The drops in value of 4.1% and 3.7% by equity hedge and event-driven strategies last month marked the fourth month running each strategy lost value, as well as their longest drawdown since the 2008 crisis.
Kenneth Heinz, president of HFR, said: "The volatile environment for hedge funds in August exhibited certain similarities to the financial crisis of 2008, but exposed key differences, with significant implications for both investors and hedge fund managers. Similar to 2008, equity and credit-sensitive strategies were the weakest area of performance while macro systematic funds were tactically positioned for the volatile environment.
"In contrast [to 2008], however, financial markets maintained liquidity in August, with risk dynamics concentrated in developed market sovereign credit and employment, as opposed to 2008, when the overhang of excessive levels of private consumer and mortgage debt were the primary catalysts."
HFR data suggested 70% of all hedge funds failed to make money in August, although the average decline was far milder than the 11% plunge by European shares, or falls of up to 15% elsewhere.
Funds of hedge funds failed to lessen single funds' declines last month, as they dropped 2%, leaving them 1.9% lower this year.
However, it was not all bad news for the $2trn industry.
Global macro, computer-driven funds and short-biased hedge funds made money from last month's falling markets, and almost half the industry (45%) is still up for the year.
Short-biased funds made 6.9%, their fourth consecutive month of gains, to leave them 2.5% up this year. Macro strategies, which aim to profit from changes in macroeconomic variables such as interest rates and commodity prices, made 0.1% in August.
In the middle of last month's turbulence, Morten Spenner, chief executive of hedge fund investor International Asset Management, said: "Overall, I'd argue that - given the context of market moves - most managers have protected well, which reflects positively on the industry. In addition, some have managed to position themselves so to even profit from the movements.
"We've seen significant positive performance month-to-date from several [computer-driven] managers and even an emerging markets equity long/short manager."
This article first appeared on Investment Europe
PP has compiled a list of what to watch out for over the coming months.