Hedge Fund Managers Not Earning Their Keep

Pity the poor hedge fund manager. 2008 has not been kind to him.

According to the latest figures from Hedge Fund Research, portfolio managers had the worst returns in the first half of this year than they've had since the firm started tracking them in 1990.

Hedge funds are down 0.75 percent year-to-date, according to the H.F.R.I. Composite index. The month of June was particularly brutal as returns fell 0.68 percent.

But hedge fund investors are still way ahead of their Main Street counterparts. The S&P 500 has fallen 12.2 percent far this year. It fell 8.5 percent in June alone.

Hedge funds have lost money only one year since their returns were first tracked. In 2002, when the S&P 500 fell 23 percent, hedge funds declined by 1.5 percent.

Mutual fund managers are only expected to beat the market. Hedge fund managers, by contrast, are expected to always make money, no matter what the broader market is doing. That's why they charge the big bucks.

And indeed, they are failing this year, even when they succeeded during similar market environments in years past. During the bear market of 2000-2001, hedge funds posted returns of 5 percent and 4.6 percent respectively.

But for all the red ink flooding hedge fund land this year, one group of investors is enjoying this bear market. Short sellers.

The H.F.R.I. Short Bias Index is up 12.2 percent for the year.

Will 2008 see the launch of the Schadenfreude Hedge Fund?

by Megan Barnett