How bad will hedge funds’ year-end performance figures look?

According to Credit Suisse/Tremont, funds fell 6.30 percent in October after a 6.55 percent drop in September, taking losses for the first ten months to 15.54 percent.

Seven strategies are now nursing double-digit losses, with only two — managed futures and dedicated short bias — in positive territory.

Even global macro, which bets on the likes of global equity markets, world currencies, sovereign debt and commodities, is now back in the red. These funds are down 7.10 percent after substantial losses in September and October.

Many investors who have not already pulled out their money will be keenly watching year-end figures as they review their portfolios.

The last time hedge funds lost money over a calendar year, according to Hedge Fund Research, was in 2002 when they fell 1.45 percent.

The questions for hedge funds are how bad will it look in 2008, and will it be any better in 2009?

So star hedge fund manager Greg Coffey has opted to join established firm Moore Capital.

In April, when high-performing, high-earning Coffey resigned from GLG, the market was awash with rumours that he wanted to start up his own firm, pulling in billions from investors.

However, times have changed in the hedge fund industry.

The average fund is down nearly 20 percent so far this year, according to Hedge Fund Research’s HFRX index, while emerging markets funds have taken a particular battering as markets such as Russia and China have fallen.

Fund of funds managers say that top funds that were once able to turn investors away are now open again as investors across the industry withdraw their assets.

So perhaps for Coffey, who forfeited a bonus reportedly worth around $250 million when he resigned from GLG, a start-up has just become too risky for now.

If the shrinkage of the hedge fund industry is giving someone as well-regarded as Coffey reason to think again, then for those without a strong track record times could be very tough indeed.

Things are going from bad to worse for hedge funds.

Having only just clawed back their losses after a dreadful March, the closely-watched Credit Suisse/Tremont Hedge Fund Index shows hedge funds lost a hefty 2.61 percent in July after being hit by a double-whammy of market movements.

These freewheeling funds had been betting for some time that banks stocks would fall as the credit crisis ate into their profits, while also betting that commodities would rise as demand for oil, metals and food soared.

This had been working well, but in July banks bounced back because they looked so cheap to some investors, while commodities fell from some of the dizzying heights they had recently reached.

To make matters worse, anecdotal evidence suggests some managers had only recently put these bets on. Having watched them work for months and months and eyed the lucrative returns from a distance, they almost immediately saw them turn sour.

This all means that for the first seven months of the year the industry is down 2.11 percent and could even end the year in negative territory.

If this happens, more investors may reassess why they are putting their money with funds that are supposed to be able to make money in all market conditions – yet can’t deliver.