Jin Lee/Bloomberg NewsJohn A. Paulson apologized to investors in November.When the history books are written, 2011 may go down as the dark ages for hedge funds.
Last year was dismal for hedge fund performance, according to an index maintained by Eurekahedge, an independent information firm that specializes in hedge fund data.
Amid political uncertainty, the debt-ceiling debate in Congress and mounting fears of a European financial crisis, the Eurekahedge index, which measures average returns, dropped 4.1 percent for the year.
Even as losses mounted, investors continued to flock to hedge funds. In 2011, the industry started more than 1,100 portfolios, the second-highest number in the history of the index, the firm said. In total, $67 billion flowed into hedge funds in 2011, bringing the overall industry size to $1.72 trillion, the report said.
The year was especially rough for some of the biggest names in the hedge fund pantheon.
John A. Paulson, who made billions with his prescient calls on the subprime mortgage market during the financial crisis, apologized to investors in November, saying that that 2011 was shaping up to be the worst-ever at his firm. His Advantage Plus fund, which owns Bank of America and Citigroup, headed into the Christmas holiday down more than 50 percent for 2011.
Jeffrey Altman, the founder of Owl Creek Asset Management, also had an off year, with his flagship fund down roughly 13 percent through November. Fortress Investment Group, a publicly traded hedge fund manager, had its earnings drop by nearly 45 percent in the third quarter with a loss of $382 million.