How do they get out of this?

What's the big deal? They just write something like the following:
<blockquote>
Dear Investor:

Last year was a difficult time for fund managers..... (insert meaningless discussion of economic conditions here). The economic climate remains fraught with risk. We will continue to do our best to protect your investment.

Best regards.
Bill Gross
</blockguote>

That's the whole point of being a manager. You take your 2% of AUM regardless of whether your investors make or lose money. It's beats the heck of out trading your own money.
 
Quote from Britheron:

http://www.baltimoresun.com/business/sns-rt-us-hedgefunds-paulstre7554zk-20110606,0,7942554.story

http://www.businessinsider.com/bill-gross-in-bottom-tenth-of-bond-funds-for-may-2011-6

Bill Gross and Paulson, how do they recover from 10% downturn in their fund?
More...
Given in the first 10 days of last December Paulson's Advantage Plus fund gained 14.3%, 10% loss looks like normal volatility.
http://www.insidermonkey.com/blog/2011/01/05/john-paulsons-paulson-co-2010-returns/
 
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