Hedge fund liquidations surged in the fourth quarter, making 2008 the worst year for fund managers due to weak performance and massive redemptions, according to a hedge fund research firm.

Chicago-based Hedge Fund Research said that 1,471 funds, or roughly 15% of the hedge fund industry, were liquidated, almost doubling the 2005 record set with 848 liquidations. More than 775 funds closed in the final quarter of 2008, the firm said, more than doubling the previous quarterly record of 344 set in the third quarter of 2008.

"After years of steady growth, 2008 was a record year for hedge fund liquidations, reflecting in part the transitions occurring across many aspects of the overall financial industry, as well as the substantial performance dispersion between hedge funds," said Kenneth Heinz, president of Hedge Fund Research. "As the industry evolves to suit investor demand, trends in strategy preferences, service providers, disclosure and transparency are likely to shape the industry landscape for the foreseeable future."

Hedge Fund Research had previously reported that hedge funds saw a record $155 billion in withdrawals in 2008, only the second time in which the industry experienced a net outflow of investor capital over a full year period since Hedge Fund Research began tracking asset flows in 1990.

The firm said Wednesday that the fourth quarter also saw a sharp drop in the number of new funds launched, with only 56 launches for the quarter, down from 117 funds in the third quarter. Hedge Fund Research said that 659 funds launched in 2008, the second worst full year for fund starts since 2000, when 328 funds launched.

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