Hedge Funds Falter: Hedge funds finished the...

Hedge Funds Falter: Hedge funds finished the third quarter with their worst showing since 1994, but some of the volatile portfolios remained ahead of stock market indexes for the year, investment research and consulting firm TASS Management said Tuesday.

Hedge funds--unregulated investment pools for the wealthy--have been plagued by bad news in recent weeks, notably the events leading to the $3.5-billion bailout of troubled U.S. hedge fund Long Term Capital Management arranged by the Fed.

TASS said funds that trade the bonds of emerging-market nations were the worst performers in the first three quarters, with average losses of 35.7%. Emerging funds were also the weakest performers in the third quarter, down 27%.

Meanwhile, international financier George Soros announced he would shut down his $1.5-billion emerging-markets hedge fund, which has lost 31% of its value so far this year.

Short sellers--who borrow stocks and sell them in the hope of buying them back at lower prices--were the third quarter’s best performers, returning 21%.

Commodity trading advisors, which tend to invest via futures contracts--agreements to buy or sell a security or commodity at a set price at a given date--were the only other category to show positive returns, averaging 8.9%.

Currency funds topped the list of best performers for the first nine months of 1998, gaining 18.3%.