Navigating the Hedge Fund Maze - September 2008

For as bad as August was for hedge funds, September appears to have been even more unkind. "This is the worst start to a year for hedge funds since the beginning of the Hennessee Hedge Fund Index in 1987," Hennessee Group co-founder Charles Gradante said in a press release from the company on September 9. Ospraie Management, a hedge fund firm partially owned by Lehman Brothers (which itself filed for Chapter 11 bankruptcy on September 15), announced that it will "shut down and return funds." And Morgan Stanley, one of the two big prime brokers, lost nearly one-third of its prime brokerage assets in one week due to "nervous funds" fleeing.

About the only good news to emerge from the hedge fund world in September was that groups such as Harbinger Capital and Highbridge Capital--according to a story in the New York Times--appeared to be acting in a more conservative fashion with all of the recent risk. However, if hedge funds are supposed to thrive on risk in the market, can this necessarily be seen as a good thing?