It's been a trying year for hedge funds (hedge fund news), after a solid--even spectacular--2009. Here's one way to look at the industry's woes: About 54 percent of all hedge funds are below their high-water marks, according to research firm AR.

Barring a tremendous last-quarter rebound, which you shouldn't count on, it looks like about half of the industry will not get paid any performance fees for 2010 and will start 2011 in a hole. Many are still working off losses from 2009 and even 2008, notes Crain's. That's a tough situation.

It will be interesting to see how the industry responds. My guess is that we'll see more fund firms start new funds, which only makes sense. At a time like this, a fresh start is just what the doctor ordered--especially if you want to get paid again. This will call for some smoothing over with investors in old funds, but it may be worth the effort.

Indeed, some expect up to 20 percent of all hedge funds to be liquidated soon. In some cases, we may see some desperate managers go all out to get back to their high-water marks, which would be sad and dangerous. At a time like this, you've got to be happy with your management fees. 

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