Dear investors

20 October 2008 By Richard Beales Follow @richardbeales1

Hedge fund managers have been eating humble pie, although a few have managed the odd bite of I told you so as well. With a little help from Citadel, Greenlight, Lahde Capital, TPG Axon and others, Richard Beales presents a fictitious investor letter with two possible endings.

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The average hedge fund lost 5% in September, for a loss of 10% in the first nine months of 2008, according to Hedge Fund Research.

Hedge funds, like many investment concerns, were affected by falls in global stock and credit markets, extreme volatility, bans on short selling, deleveraging forced by scarce credit, and investor redemptions.

Bigname losers included Citadel Investment Group, whose biggest funds were down as much as 30% for the year by early October, and long/short investor David Einhorn's Greenlight Capital, whose funds fell by 15%20% in the third quarter.

Winners included Paulson & Co, with some funds up more than 20%. Founder John Paulson made billions for investors and himself in 2007, betting on a housing market collapse in the US.

In compiling this feature, Breakingviews for the most part used the exact words of fund managers at Cerberus Partners, Citadel, Greenlight Capital, Tontine Associates and TPG Axon, among others, some of whose investor letters were first publicly posted on Dealbreaker.com. The alternative ending, meanwhile, owes much to Andrew Lahde of Lahde Capital, as reported on Friday by the Financial Times. All the words have, however, been rearranged out of context and no longer necessarily reflect the views of these managers.

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