Most strategies were affected in September, by the dearth of liquidity across the markets and the high volatility across asset classes, among other things. Arbitrage and relative value fund of funds were down -4.3% and -7.5% respectively, on average, as hedge funds of both strategies were affected by illiquidity, selling pressures on the long side and by the bans imposed in some markets on shorting financials. While most relative value funds posted losses in the range of -4% to -9%, one manager lost over 13% bringing down the sector's average to -7.5%.

Long/short and event driven funds of funds lost -7.2% and -5.7% respectively as hedge funds of both strategies were largely affected by the equity market selloffs and the spike in volatility during the month. Furthermore, redemption pressures, which resulted in efforts to liquidate positions to raise cash, affected long/short hedge funds, while wider merger arbitrage spreads impacted the performance of event driven single-managers.

Fixed income and distressed debt funds recorded losses averaging -4.2% and -4.8% respectively, as fixed income hedge funds faced selling pressures in both distressed bonds and bank loans, while a sharp fall in the high yield market (particularly in North America) impacted distressed debt managers, during the month.

CTA fund of funds fared better with relatively modest losses (-0.9%), as gains from investments in currency-investing hedge funds (who bet in favour of the US dollar) somewhat offset losses suffered by commodity-investing managers. Macro funds (-3.5%), however, were affected by their investments in both equity and commodity-investing managers, among others, who had a rough month in September. Multi-strategy managers (-5.6%) were also affected largely by their exposure to long/short hedge funds, which took a considerable hit during the month.

North American and European funds of funds were both down in excess of -6% (-6.4% and -6.1% respectively), largely owing to losses suffered by long/short managers in both the regions. A large portion of these losses can be attributed to the fact that hedge funds in both regions were negatively impacted by the ban on shorting financial stocks, coupled with redemption pressures, among other things, during the month.

In Asia, Japanese funds of funds (-3%) outperformed their Asia ex-Japan-focused counterparts (-4.1%).

For the latest monthly returns and 2008 returns for Eurekahedge hedge fund and fund of funds indices please visit www.eurekahedge.com/indices or contact editor@eurekahedge.com to comment on this report.

Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore

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