The Greenwich Global Hedge Fund Index (GGHFI) fell -2.44% in January amid severe declines in global equity markets; the S&P 500, MSCI World Equity, and FTSE 100 indices fell by -6.0%, -7.71%, and -8.94%, respectively.  During January, 79% of hedge funds outperformed the S&P 500, with 33% ending the month in positive territory. 

"Despite January being hedge funds' weakest month since July 2002, hedge funds fell far less than equities," notes Margaret Gilbert, Managing Director.  "This 'downside protection' is particularly apparent over the last twelve months with hedge funds returning +7.14%, or outperformance of +9.45% over the S&P 500 which fell -2.31% during this period."

For January, all four of Greenwich's hedge-fund strategy groups outperformed the S&P 500.  The Directional Trading Group ended up +0.81%, with positive performance driven by futures managers' returns of +2.13% for the month.  Dedicated short sellers were the stellar performers, up +6.99%. 

Long-biased equity strategies sustained widespread losses with the Long-Short Equity Group down  -3.75% in January.  The Specialty Strategy Group ended the month down -4.28%, largely attributable to emerging managers losing -6.16%.  The Market Neutral Group declined by -1.23%.  The January Index currently includes 1,011 constituent funds. 

The Greenwich Composite Investable Index returned -2.45% in January which closely tracked the performance of the GGHFI.  The Greenwich Investable Index, comprising 52 constituent funds, adds investability, active management and liquidity to the diversification and performance benefits of the broad Greenwich Global Hedge Fund Index. It references actual hedge fund vehicles as opposed to separately managed accounts or other methods used in an attempt to replicate the returns of hedge fund vehicles.  The Investable Index has a correlation of .94 and beta of 0.95 to the GGHFI and is reported monthly net of a 0.04% Index calculation fee. 

Larger than reported losses for UK-based hedge funds will prompt a extensive cost cutting measures this year, it has been reported.

Data from Hedge Fund Research showed that the overall return for hedge funds during January was -1.8 per cent.

However, according to managers of funds of funds cited by the Financial Times, the survey underestimates the extent of the difficulties for the funds and is not representative of the wide range of results.

In fact losses for some funds are closer to eight per cent during the month, it is claimed.

The FT reported on Monday that credit hedge funds and so-called relative value funds are currently having a hard time. To make profits from small discrepancies among prices, these funds use massive amounts of borrowed money. In the past they could borrow up to four times their own money. Now most are fortunate to get twice as much from banks.

"There has been a significant deleveraging of the business model," said John Wickham, a managing director at Lehman Brothers with responsibility for financing hedge funds. He added that many hedge funds were forced to close out positions last year because they violated their credit agreements or faced margin calls they could not meet.