The turmoil in the credit markets in the US is being blamed for the hedge fund industry’s worst performing month since May last year. Hedge fund returns lost 1.31 per cent in August with emerging markets, high yield and macro strategies posting declines, according to Chicago-based Hedge Fund Research. “Hedge fund performance volatility increased at the end of July and has persisted into September, driven in part by investor concern about continued deterioration in the sub-prime mortgage sector and the corresponding impact on access to liquidity by both consumers and corporations,” said Kenneth Heinz, president of HFR. The August decline left HFR's Hedge Fund Index up 6.2 per cent so far this year. According to the firm, emerging markets managers performed the worst in August, losing 2.54 per cent on average, while global macro funds lost 2.18 per cent and high-yield debt funds lost 1.97 per cent, leaving them down 0.50 per cent for the year so far. “While a number of strategies posted losses for the month, much of these aggregate, intra-month losses were pared into month end,” Mr Heinz said. Confidence in credit markets in the US has not bounced back following the collapse of the sub-prime mortgage industry earlier this year. And absolute returns from currency hedge funds fell 0.58 per cent in July, according to the latest data from the Parker FX Index. Excluding fees and interest, the index was down 0.39 per cent. The index, which tracks the performance of around 80 currency funds, said the median return for July was down 0.1 per cent, while the performance ranged from a high of 8.52 per cent to a low of -13.51 per cent. "During July, many managers were caught off guard as volatility in the currency markets surged," said Parker in a statement. "The main cause for this unprecedented jump in volatility was the reversal in the yen, as carry traders unwound their bets," the firm said, adding that the yen climbed 3.5 per cent against the dollar during the month. The reports comes as estimates for bonuses to be paid to hedge fund managers this year have been scaled back, according to a new report. Cash bonuses are seen rising between 1 per cent and 9 per cent from the previous year, a "substantially lower" increase than predicted before the market turmoil, according to a report by Glocap Search, Institutional Investor and Lipper HedgeWorld. But even so, 2007 base salaries for investment professionals of all types working at hedge funds saw single-digit increases, regardless of fund size or performance, the report said. Average total compensation for investment professionals with one to four years of experience at hedge funds with between $1 billion and $3 billion is estimated at roughly $330,000 this year, the report found. Those with more than 10 years of experience at funds with over $10 billion in assets are estimated to be paid $2.35 million, on average. Fundraisers are seen earning pay packages of about $730,000 this year, while senior analysts at funds are forecast to take home $325,000, according to the report.