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?

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.