According to Bloomberg.com, hedge funds lost an average of 2.7 percent in May according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe prompted declines in stocks, the euro and commodities, and the gap between the yields in U.S. short-term and long-term debt narrowed. This was the biggest decline in the industry since November of 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers’ collapse two months earlier.

Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.

John Paulson’s fund lost 6.9 percent through May 21, bringing its year to date loss to 3.3 percent. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. Representatives for these funds declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since inception.

SAC capital also suffered losses, but only 2.9 percent, reducing this year’s gain to 4 percent. Citadel is said to have lost 2 percent and Brevan Howard .1 percent, respectively.

The measures many managers, including Paulson, Halvorsen, and Bacon, put in place to hedge against falling markets didn’t work. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities lost heavily in may, taking losses of 8.2 percent according to the UBS Bloomberg CMCI Index. In addition, those expecting economic growth suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead.

A few funds actually gained. Among them, notably Caxton Associates LLC rose 1 percent as of May 21 and was up 4.5 percent for the year. Autonomy Capital Research LLP gained .7 percent and is up 12.5 percent for the year.

Robert Gibbins, manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said.

Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide.

BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor.

However, despite a turbulent May, price swings haven’t changed managers’ attitudes views on whether the global economy is in trouble or recovering.

Tags: Autonomy Capital Research, BAM Capital, Caxton Associates, Citadel, Halvorsen, Hedge Fund, HFRX Global Hedge Fund Index, John Paulson, Loss, Moore Global Capital, Robert Gibbins, SAC Capital, Viking Global

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