The 3 reasons so many hedge funds got wiped out in 2015

It's been an ugly year for the hedge fund industry.

As a group, hedge funds have posted dismal returns. The average hedge fund is down -3.72% this year, according to Hedge Fund Research.

The S&P 500, a commonly used benchmark to compare hedge fund performance, is down -2.59% this year.

Dispersion

Volatility

During the third quarter, a number of hedge funds - particularly the activists and the long-short equity funds that were long-biased - saw their portfolios suffer, especially on Monday, August 24, when the Volatility Index (VIX) hit its highest level in four years as markets got clobbered.

Liquidity

In some cases, a fund might introduce a delay on paying back redemptions to give itself more time to dispose of hard-to-sell assets. That tactic typically rankles with investors, however, and can create a rush for the exits as investors look to get their money out of the fund as quickly as possible.

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