We have previously said a lot about the “hedge fund hotel” implosion observed in the third quarter, a quarter in which many of the hedge fund community’s favorite stocks all suffered spontaneous disintegration leading to unprecedented drawdowns for some of the industry’s “best and brightest” names.

Now, it’s Goldman’s turn. In the firm’s Q3 hedge fund tracker report we read that “from July through October, hedge fund favorite stocks posted their worst relative returns outside of 2008.” Goldman continues by admitting that when all hedge funds pile up in the same handful of names, and when even a small disturbance appears, all 2 and 20 bets are off. The result: the firm’s Hedge Fund VIP list of companies most beloved to the “smart money”suffered its worst performance since 2008 driven almost entirely by just one company: Valeant.”

Our Hedge Fund VIP list (ticker: GSTHHVIP) of most popular long positions underperformed the S&P 500 by 720 bp during that three-month window (-8% vs. -1%) as a sharp downturn in Valeant Pharmaceuticals (VRX) and other previously high-flying healthcare stocks weighed on fund returns. After outperforming the S&P 500 by 7 percentage points (pp) in 2012, 9 pp in 2013, and 3 pp in 2014, the VIP list has lagged the S&P 500 by 5 pp year to date (-2% vs. +3), putting 2015 on pace to match 2011 as the worst year for hedge fund favorite stocks post-crisis. With its 66% decline since the VIP list’s last rebalance in August, VRX alone accounted for 26% of the basket’s negative return. Healthcare in aggregate accounted for nearly 70% of the fall.

The result: hedge funds are not only about to post their 7th consecutive year of S&P 500 underperformance, but the entire “2 and 20 model” is in greater jeopardy than ever, which incidentally is what we have said all along: who needs to “hedge” when you have every central bank in the world doing everything in their power to avoid even a 5% decline in the “market”?