U.S. hedge funds losses balloon in September - HFR

BOSTON, Oct 7 (Reuters) - Hedge funds' losses ballooned last month when the average portfolio tumbled 4.68 percent, marking the industry's worst monthly performance, according to new data released on Tuesday.

The average hedge fund has now lost 9.41 percent this year, data released by Chicago-based performance tracking group Hedge Fund Research showed.

Hedge fund managers and investors first began talking about the industry's losses at the end of September and Tuesday's numbers confirmed what many people already knew.

While the industry's losses are less than the average stock mutual fund's drop, they are shocking to investors who entrusted millions to managers in return for promises to make money in all markets.

The industry's year-to-date losses are now more than double the 4.83 percent drop seen in the first eight months of the year.

Managers and investors blamed September's violent stock market moves plus regulators' ban on selling stocks short and the collapse of Lehman Brothers for the accelerated losses.

Some of the industry's biggest names numbered among the industry's losers -- Kenneth Griffin's Citadel Investment Group, Dan Loeb, an activist investor, and Lee Ainslie, who once worked for industry legend Julian Robertson.

The biggest losers were hedge funds that focused on energy and basic materials. According to HFR they lost 13.21 percent in September, putting them down 20.84 percent for the year.

Industry investors are speculating that many more of these types of funds will collapse in the coming weeks as investors demand their money back. One of the first casualties was Dwight Anderson's flagship Ospraie Fund Ltd, which suffered a crippling 39 percent loss in the first eight months of 2008 and was forced to shut down early in September.

Funds betting exclusively that stock prices will fall are still scoring the industry's biggest gains. In September they notched a 5.28 percent gain which puts them up 15.14 percent for the year.

But managers at short-biased funds have complained that regulators' ban on shorting financial sector stocks has harmed them and they are waiting nervously on whether they will be forced to tell the public about their bearish bets. (Reporting by Svea Herbst-Bayliss, editing by Leslie Gevirtz)