According to data from Hedge Fund Research (HFR), a tracking index of such outfits recorded a drop of 2.26 per cent last month - marking the worst return since November 2008.
"Hedge funds were broadly impacted by the sharp increase in risk aversion associated directly with the sovereign bond crisis escalation," the report stated.
However, the industry is still performing more strongly this year, with around $1.66 trillion worth of assets under management, compared to $1.6 trillion at the end of the fourth quarter of 2009.
According to a report in the Financial Times last month, the first week of May was particularly difficult for many hedge funds.
BlueTrend dropped 7.57 per cent in the opening days of the month, Renaissance Institutional Equities Fund fell 3.6 per cent and AHL saw a 3.3 per cent reduction.
By Asim Shah