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New York—Hedge funds have had a bad first half, down .75% year to date according to Hedge Fund Research Inc (HFRI).  Hennessee Group LLC has them down .85% YTD.  The Greenwich hedge fund index was down 0.1% for the year-to-date through June.  According to HFRI it was the worst half year performance since they started tracking performance in 1990.

Relative to market performance (and equity mutual fund performance), the hedge fund results look good.  The Standard & Poor’s 500 stock index was down 12.84% at the end of the first half of 2008 and the Dow Jones Industrial Average fell 14.43%.  The Nasdaq Composite Index was down 13.53% year-to-date.   Morningstar’s composite indices for mutual funds are down between 11% (for small cap value funds) and 16% (for large cap value funds).

However, hedge funds aren’t about relative returns, are they?  They focus on absolute returns.  And on absolute basis, it is not pretty. 

Most of the damage was done in the first quarter, according to E. Lee Hennessee of the Hennessee Group:  “Many managers struggled in the first quarter as they were whipsawed by huge swings in volatility,” she said. “However, during the second quarter, managers performed better as they maintained well-hedged, tighter exposures.”

The Hennessee Arbitrage/Event Driven Index is basically flat for the year, dropping 0.05% year-to-date.  The Hennessee Long/Short Equity sub-index ended the first half down 1.07%.  HFRI has long/short funds down 3.31% YTD.   The worst performing were Asia-Pacific managers, which lost 7.95% in the first half according to Hennessee.   HFRI reported Asia ex-Japan funds  down 14.16%.

On the plus side, distressed funds were up 1.73% for the year, market neutral managers were up 1.96% YTD, and short sale specialists were up 6.61%, according to Hennessee. The best performance was put in by macro managers which are up 7.26% through June, according to Hennessee.