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Hedge funds fold

The Washington Times – Year after year, the hedge fund industry dazzled Wall Street by delivering "absolute returns" – outsized profits whether markets rose or fell. Using sophisticated trading models, the pools of managed capital made wealthy people wealthier with eyepopping returns that carried seemingly moderate risk.

Not these days. Blindsided by a colossal market collapse and the widening Bernard Madoff scandal, hedge funds suffered their worst showing on record last year. And they’re bracing for more pain in 2009. The industry’s fall proves that even the quantitative brilliance and market wizardry of elite hedge funds are no magic bullet for investors during brutal times.

"Hedge fund managers have always said, ‘Look, we know how to make money even in difficult times,’ and that turns out to be a fallacy," said Timothy Brog, portfolio manager of New York-based hedge fund Locksmith Capital Management.

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