The pain was far worse for those exposed to emerging markets, where many hedge funds have ventured in search of bigger returns. Stocks in Turkey, for instance, are down 15 percent in U.S. dollar terms so far this year and nearly 50 percent from their peak last May.
Even with markets looking calmer Monday morning, last week's rough ride reminded hedge funds of a challenge they haven't faced in some time: Generating positive returns in a losing market.
With the S&P 500 rising every year since 2009, it has been possible to generate decent returns without keeping up.
Take 2013. The HFRI Equity Hedge Index, which tracks stock-focused funds, rose 14.6 percent while the S&P 500 rose 29.6 percent. Similarly in 2012, the Equity Hedge Index gained 7.4 percent, compared with a 13.4 percent rise in the S&P 500.
Such a performance was probably enough to please many investors who have entrusted their money with hedge funds. The thinking is that hedge funds can deliver stable returns in any market, even if they lag a bit when stocks soar.