The global hedge funds industry saw its worst monthly loss for this year in September, according to data from Singapore-based research firm Eurekahedge.

The Eurekahedge Hedge Fund Index, which tracks more than 2,400 hedge funds, lost 4.6 per cent over September, bringing average returns for the first nine months of this year to -7.7 per cent.

"On the whole, hedge fund assets shrank US$88 billion, reducing the industry's size to US$1.79 trillion," the research firm said.

The decline, which is the worst seen since the company began collecting data eight years ago, can be attributed to the global financial crisis, particularly to short-selling bans in the US, Europe, Australia and Taiwan.

"The month's market movements came amid historic trigger events in the global financial markets, as the bankruptcy, taking over or bailing out of major, centuries-old institutions... brought the year-long, sub-prime triggered turmoil... to a boil," the firm said.

"The shorting bans and attendant disclosure clauses, coupled with distress across some of the largest services providers to the hedge fund industry and anticipated redemption pressure from investors, weighed heavily on hedge fund managers."

The Eurekahedge Australia/New Zealand index showed a return of -3.2 per cent over September, when looking at all strategies. Over the first nine months of this year the return came in at -10.3 per cent.

Commodity trading in Australia and New Zealand was the only fund category to post a gain.

Over September, the return was 0.1 per cent, while the first nine months of the year realised a return of 1.4 per cent.