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Any lingering hopes that the eventual agreement last Friday on the US bailout package would provide a turning point in the market turbulence, finally convincing investors that it was safe to come back into the equity markets and persuading banks to resume lending to each other, were swiftly dashed in a grim day's trading on the world's stock markets.

Starting in Asia, continuing across Europe and ending in the US, share prices continued to plummet - 7.87 per cent in the UK, 9.04 per cent in France, 3.58 per cent for the DJIA - amid a stream of lurid headlines about institutions in difficulty or worse: Fortis, Hypo Real Estate, UniCredit, the entire Icelandic banking sector.

Across the world, central banks are ploughing short-term money into the markets and hinting at interest rate cuts, and governments are extending depositor protection promises, but nothing seems able to staunch the bleeding.

Against this backdrop, the Hedge Fund Research index figures for September are as ugly as expected: a 6.9 per cent drop for the HFRX Global Hedge Fund Index, taking its decline for the year to 11.61 per cent, with every sub-strategy losing money. For equity market neutral funds the decline was a bare 0.24 per cent; but pummelled by the short-selling ban, convertible arbitrage plunged 16.55 per cent.

It may seem impertinent to point out that the average hedge fund was down in September, and for the year to date, considerably less that most of the world's equity markets. Yet despite the handicaps of the shorting restrictions and market conditions that have brought even the most experienced and skilful of managers to their knees, hedge funds are continuing to perform their function of protecting capital in market downturns. Perhaps imperfectly, but less imperfectly than almost anything else.


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