Hedge funds investing in emerging markets ended last year with seven consecutive months of performance declines, resulting in cumulative losses of nearly 37%, according to Hedge Fund Research Inc.

It was "the worst year of performance since HFR began tracking emerging markets-focused funds in 1990, eclipsing the previous record decline of nearly 33%, set in 1998," the Chicago firm said Monday.

Investors withdrew $6.7 billion from emerging-markets hedge funds in the fourth quarter, with total hedge fund capital committed to these markets falling to under $67 billion globally.

At yearend assets in the funds were down nearly 43% from their peak at the end of 2007, according to Hedge Fund Research.

Emerging-markets hedge funds have been a top-performing strategy in six of the past 11 years, an average performer in two of those years, and a near-worst performer in three years, the firm said.

The sector "characteristically experiences sharp recoveries after declines, with an average gain of over 23% in the 12 months following the five largest historical declines," according to Hedge Fund Research.

Kenneth J. Heinz, the firm's president, said in a press release: "Performance of Emerging Markets hedge funds has historically been characterized by cyclical extremes relative to the rest of the hedge fund industry. Investors who have endured the volatility have realized an average gain of nearly 13% annually since 1990, with volatility that was similar to that of the S&P 500, which has returned 7.3% annually over the same period."

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