Hedge funds lose 1.3 percent in August

NEW YORK — Hedge fund investors have grown used to huge returns. No longer.

Last month’s market volatility has caused the $2.4 trillion industry to suffer its only losses of the year. Hedge funds collectively posted declines of about 1.3 percent in August, according to industry tracker Hedge Fund Research Inc.

The deep-pocketed investors that infuse these funds with capital are now bracing for the most disappointing progress reports seen in years, with the risk of even worse to come in weeks ahead.

“For those that suffered from declines, it is still fairly early to provide any kind of concrete results,” said Joel Schwab, managing director of Channel Capital Group Inc., which tracks hedge fund performance. “The books may still be adjusted, numbers may still decline, and estimates could be revised downward.”

Citigroup Inc.’s flagship Old Lane Partners LP told investors in a letter sent out on the weekend that it suffered a 5.9 percent decline in August. Pirate Capital, the hedge fund managed by Thomas Hudson, told its backers that assets in two of its activist funds lost almost 80 percent of their value in the past year.

More letters are expected as hedge funds — especially those that invest heavily in illiquid or high-risk assets like mortgage-backed securities — finish tabulating results for the month.

Hedge funds, which are typically privately run investment vehicles that attract wealthy individuals and institutions, were squeezed as stock markets were roiled this summer. Rising delinquencies on mortgages made to people with bad credit forced two hedge funds managed by Bear Stearns to file for bankruptcy this summer.