Effron is also critical of the industry, which he says is overcrowded. As many as half of the 8,400 funds in existence today will need to disappear, he says.

Perry, Nevsky

For some, the challenges have proved insurmountable. Richard Perry, one of the earliest hedge fund managers, threw in the towel on his Perry Capital last month after almost three decades, saying his style of investing no longer worked. Traci Lerner returned money from her Chesapeake Partners Management in June after 25 years, saying fallout from the financial crisis resulted in a hostile investing environment. Martin Taylor and Nick Barnes, who closed London-based fund Nevsky Capital in January, said computer-driven markets were incompatible with the way they trade.

Click here for a related story on Richard Perry and his fund’s closure

Some managers faced graver problems. Jacob Gottlieb is liquidating his Visium Asset Management after two former employees were charged with securities fraud. One later killed himself. Leon Cooperman and his Omega Advisors Inc. were accused by regulators of insider trading, while Dan Och’s Och-Ziff Capital Management Group LLC, one of the world’s largest hedge funds, paid more than $400 million to settle bribery charges.

The survivors aren’t unscathed. Bill Ackman and John Paulson are among those who have posted losses of at least 20 percent this year. Paul Tudor Jones, who helped spawn the industry, was forced to trim the hefty fees he charges clients and slash employees as clients pulled money from his Tudor Investment Corp. Alan Howard’s Brevan Howard Asset Management, which also saw withdrawals, and Andrew Law’s Caxton Associates cut fees too.

Transatlantic Malaise

The frustration is felt on both sides of the Atlantic. George Papamarkakis, whose main fund at $1 billion London-based North Asset Management is down about 10 percent this year, likens the industry’s poor performance to a chronic disease.

“There’s gloom everywhere,” Papamarkakis, 46, says at a steakhouse in midtown Manhattan during a visit to the U.S. last week. The financial crisis “was a sudden death for a lot of people, like a heart attack, but this feels like cancer to many people, a slow death.”

Papamarkakis started his firm 14 years ago and is one of a group of managers seeking to profit from broad economic trends by trading everything from yen to oil -- a strategy known as macro. Such funds have struggled to make money because bonds make up much of their trading and low interest rates across the world make it harder to profit from differences among countries.