Hedge funds edge closer to recouping crisis losses

The hedge fund industry is on the brink of recouping all its investment losses sustained during the credit crunch, placing many funds in a position to earn performance fees.

By the middle of last week, the average fund needed only a 2 percent gain to reach its value on June 30 2007 at the height of the last boom, according to data from Hedge Fund Research.

At the current rate, the industry will be back above the highest level of two years ago late next month. Funds on average have returned 18.3% this year to October 21, helping repair almost all the damage from relatively controlled losses they made in the second half of 2007, and the more dramatic 19% fall of 2008.

A return to the previous top is vital for managers because only after hitting the level again – known as the high water mark ­ can they earn 20% of fresh profits. The fact that global shares, as represented by the MSCI World Index, have to claw back 27% after their slump in 2008 is little comfort to managers still under the water.

Christopher Miller, chief executive of hedge fund rating agency Allenbridge Hedgeinfo, said the industry was now “tantalisingly close” to pre-crunch levels.