A record 778 hedge funds liquidated during the fourth quarter, capping a year that saw financial markets melt down and investors yank $150 billion of their money at the end of 2008, Hedge Fund Research Inc said on Wednesday.

The ranks of hedge funds were more than decimated as 1,471 hedge funds closed down last year, or nearly 15 percent of all funds, HFR said. More than 275 funds-of-hedge funds were liquidated in 2008, also a record.

Meanwhile, 56 new funds were launched during the quarter, contributing to 659 that opened their doors throughout 2008.

On a net basis, the total number of hedge funds fell by 8 percent to 9,284 last year, the Chicago-based firm said.

Last year was a disaster for hedge funds, lightly regulated investment pools that are the exclusive playground of big institutions and wealthy families. As markets tanked, investors withdrew money and triggered a cycle of forced selling that put more pressure on markets.

The number of liquidations more than doubled the previous quarterly record of 344 set in the third quarter. Last year's liquidations marked a 70 percent increase from the previous annual record set in 2005.

Among other findings, HFR said the credit crunch that roiled Wall Street's biggest banks did not loosen their grip on the prime brokerage business: the top three prime brokers still controlled 62 percent of hedge fund industry capital.

Last year also was a record for disparity in performance, with about 100 percentage points separating the top 10 percent of performers from the bottom 10 percent.

(Editing by Dave Zimmerman)

Investment