Only three strategies adopted by hedge funds appear to have survived unscathed the rout of the sector last month, as the "absolute return" industry again mostly failed to protect investors against market turmoil.
The nascent freight and property derivative sectors and carbon credit trading proved resilient to the wild swings in equity markets in August with small funds specialising in the areas coming through well.
However, the poor performance of the rest of the industry - in which more than two-thirds of all funds lost money - has left many investors wondering what happened to the hedge fund aim of not moving in line with other assets or each other.
"Hedge funds didn't do what they say on the tin," said one senior hedge fund manager last week. Much the same happened in May last year when hedge fund systems designed to avoid being hit by plummeting markets did not work.
The problem, according to prime brokers and analysts, is caused by the hedge funds themselves. "There's one thing that comes out of all these shocks and it is really part of the increasing power of hedge funds," said the head of European prime broking at one Wall Street bank. "When they are going through a challenging return environment, a lot of their assets are more correlated than you might have expected."
This is caused by global multi-strategy funds, some of which deploy more than $100bn (£50bn) when fully leveraged. When they lose money in one area, they are forced to sell off other investments to cover margin calls from their lenders, prompting falls across all the asset classes they trade.
But the derivatives niches created for freight and property remain too small for the big hedge funds to operate in full time while few have dedicated carbon trading desks. Some other illiquid hedge strategies, such as pre-float private equity investment and direct lending, also had a positive August. But monthly valuations are questionable when there is no market for the assets.
Iceberg Alternative Real Estate, a joint venture between London's Reech Alternative Investment Management and property advisers CB Richard Ellis, will today tell investors it made 5.04 per cent after fees in August.
Iceberg, one several property hedge funds set up this year, made its money from both property derivatives and right calls on listed property companies.
smokescreen" that have few tangible environmental benefits. As if that weren't bad enough, it now turns out that one of the few strategies that have paid off for hedge funds during this trying year is carbon trading. If you needed any more proof that carbon trading is of suspect validity, leave it to hedge funds to sow doubt. Quite frankly, most couldn't care less about the environment (sigh). It's back to the ol' drawing board when speculators and not the environment benefits from these schemes: