In many cases, the reversal of fortune suffered by individualfunds dovetailed with their exposure to risky commercial realestate investment. "Hedge funds are momentum-driven, and many ofthem shifted gears to focus on real estate," says Dan Fasulo,managing director with Real Capital Analytics. "Let's faceit--between 2005 and 2007, real estate was the flavor of theyear."

An article last week in the New York Times noted that"hedge funds and private equity, once lucrative businesses thathelped define an era of unrivaled Wall Street wealth, have crumbledin the credit crisis." Fasulo tells GlobeSt.com that the issuewasn't ill-advised investment decisions. "But there's no questionthat a lot of the deals and positions they took were on the riskyside of the spectrum, and subsequently that has come back to bitethem because of how quickly the market has changed." As an example,he cites Fortress' bridge loan to Macklowe Properties on its$7-billion acquisition of the Equity Office portfolio, anacquisition that ended in the piecemeal, discounted sale of thatportfolio earlier this year.

"These are high-risk, high-return players," Fasulo says. "Manyof them saw that their peers had invested in CRE earlier in thecycle and made tremendous returns. So everyone wanted in on theparty. It's the hedge funds that had huge positions built up whenthe music stopped that are really in serious trouble."