hedge funds down big

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NEW YORK (MarketWatch) - Leading hedge funds run by firms including Maverick Capital, SAC Capital and Farallon Capital, lost more than 10% in September, making it the worst month in at least a decade for the $2 trillion industry.

The Hennessee Hedge Fund index, which tracks the performance of hundreds of managers, dropped 6.24% last month, leaving it down more than 10% so far this year, industry consultant Hennessee Group said on Wednesday.

"Despite being defensively positioned, September was the worst month for hedge funds in over a decade," Charles Gradante, Co-Founder of Hennessee Group, said in a statement.

The Securities and Exchange Commission ban on short selling of financial company shares "caused significant losses across most strategies and required funds to alter their trading models," Gradante explained.

The ban kicked in during September and most hedge fund losses happened after that as the intervention forced some managers to buy back stock to close bearish bets - a so-called short squeeze, he added.

Hedge Fund Research, which also tracks performance in the industry, said on Tuesday that its main index fell 4.68% in September, leaving it off 9.41% so far in 2008.

The losses last month were the second worst since 1990, when HFR began tracking hedge fund returns. The index slumped 8.7% in August 1998, as Long-Term Capital Management was collapsing, HFR noted.

Some of the industry's top managers suffered big losses last month.

One fund run by Lee Ainslie's Maverick Capital lost 19.5% in September, while a more leveraged fund slumped 35.5%, according to hedge fund investors who declined to be identified.

A multi-strategy fund run by Steven Cohen's SAC Capital lost 10.7% last month, while another fund run by Thomas Steyer's Farallon Capital fell 10.5%, the investors reported on condition of anonymity.

A European fund run by Atticus Capital slumped 15.8% in September, while The Children's Investment fund, headed by Chris Hohn, fell 15.3%, leaving it down more than 26% so far this year, according to investors.

Tiger Global, run by Chase Coleman for industry legend Julian Robertson, lost 14.3% last month, after being in positive territory this year through August, investors added.

Other hedge funds lost even more.

Copper River, a well-known fund that focuses on short selling, lost more than 50% in September, while Tontine Partners, run by Jeffrey Gendell, fell by almost 60%, according to investors.