By Dan McCrum in New York

A week of turmoil has left the hedge fund industry bruised by losses as markets reacted to fears for the state of the global economy and concerns that the European debt crisis had reached Italy, the third-largest economy in the eurozone.

Monthly performance numbers for the industry, tracked by Hedge Fund Research, due to be released on Friday afternoon, were expected to confirm the average hedge fund manager was down 2 per cent for the year at the start of the week – a number that had stretched to 3 per cent for the year so far.

Big-name losers this year have included Paulson & Co – with $35bn under management the world?s third-largest hedge fund – and some of the world?s top commodity managers, who have struggled with volatile prices for oil and other raw materials.

Paulson & Co told investors this week that its flagship funds were down 21 per cent and 15 per cent respectively for the year to the end of July.

Even those specialising in macroeconomic trading, who pride themselves on navigating currencies and interest rates in good times and bad, have struggled to deal with a world in which so many different outcomes depend on the actions of politicians and central banks.

?You need 3D glasses to watch what the Federal Reserve is doing, it?s like watching a Transformers movie,? said Anthony Scaramucci, a managing partner of SkyBridge, a fund of hedge funds that has been reducing its exposure to macro hedge funds in favour of those betting on corporate events.

?Twenty years ago the Fed had an accelerator and a brake. They raised rates when they wanted to slow the economy, they cut rates to grow the economy.?

Now, he says, central banks are using their balance sheets to buy securities, monetise government debt and intervene in different markets.

The typical hedge fund started the week flat for the year and finished it down 2-3 per cent, said one US prime broker, an investment bank that provides hedge funds with the financing to place bets on stocks and securities.

By Friday morning in New York, the net stance for hedge funds, which captures the difference between the proportion of their holdings in long and short positions, was at about 40 per cent long. During bull markets it can go as high as 70 per cent and in the first quarter of 2009 it was as low as mid-teens.

?Flat for the year is the new up 10 per cent,? said one industry veteran, who questioned how hedge funds would make money this year.

Hedge funds are also nervously waiting to hear from their investors as falling markets may prompt redemptions.

In 2008 many funds were forced to liquidate assets at a loss in order to meet cash calls.

But many funds had been hedged against volatility, even if they were not actively betting on a market fall. ?I don?t think anyone was really surprised by this,? said one fund-of-funds manager. ?I think the big guys were all prepared.?

A few funds have even prospered. SAC Capital, the $14bn hedge fund run by Steve Cohen, was up 11 per cent for the year at the end of the month, after fees.

As SAC takes half of any profits, the fund is up more than 20 per cent for the year.

? The Financial Times Limited 2011