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From Kirsten Bischoff, Opalesque New York:

For many funds, high watermarks were set in October 2007, and the 21 months since have been a long, hard climb to try and get back to levels where performance fees kick back in. Hedge Fund Research reported on Tuesday that according to its HFRI Fund Weighted Composite Index funds had an average climb of 14.7% to reach that point.

As the industry's performance disappointed throughout 2008 the number of hedge funds contracted significantly, leaving approximately 8,900 funds (down from a high of 10,000+ funds in 2007). However, the worries that numerous managers would fold funds that had descended below high watermarks in order to start new funds that would be eligible for performance fees has not panned out.

Kaufman Rossin Fund Services, LLC (KRFS), a US-based administrator for a wide variety of single strategy funds and fund of hedge funds funds (onshore and offshore), says that when it comes to funds that have been under high-water marks, it has seen managers "sticking it out", taking a long-term view of their funds and the industry in general.

The bounce back in hedge fund performance, happening rather quickly in the first half of 2009 (HFRI Fund Weighted Composite Index is up +9.46% YTD), may have made the decision to stick with their funds a little easier for many managers. "We feel that among many managers, there is a sentiment that 2008 will be an outlie......................

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