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First-Half Losses for Hedge Funds Leads to Second-Half Worries

The credit crisis continues to hit the $2 trillion hedge fund industry hard (see related story, page one). More funds have left the industry, and fewer have entered, over the past six months than collectively last year.

In April and May it seemed the hedge fund market was rebounding as it experienced gains of 1.2% and 2.11% respectively, according to data from Hedge Fund Research. In June, however, losses returned, with the average hedge fund slipping 0.68%. Through June, the average hedge funds is off 0.75%.

In particular, funds honoring steep redemptions or adhering to convertible arbitrage strategies created huge losses for clients. Despite dismal progress in some areas, small groups of hedge funds that specialize in betting on stock declines, saw gains, increasing 8.6% in June and 12.2% since January.

Meanwhile, only 35 new hedge funds have been launched in the first half of this year, down markedly from 72 funds in the first half of 2007, Absolute Return magazine reports. But this year, those new funds have raised $19.5 billion, up 39% in total assets under management at the outset from the $14 billion the new funds raised last year.

In fact, five of the 35 new funds this year amassed more than $1 billion. The most successful is the GS Investment Partners Long/Short Fund from Goldman Sachs, which raised $8.1 billion in the first six months of this year. The second most successful new hedge fund is Conatus Capital Partners, which raised $2.3 billion.

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