Hedge fund managers like to promise their investors protection from market swings. In the recent stock swoon, many were caught off guard.

Billionaire managers such as Leon Cooperman, Raymond Dalio and Daniel Loeb are deeply in the red this month, left flat-footed by the quick plunge for stocks worldwide. Cooperman's Omega Advisors posted a 12% decline this month through Wednesday and 10% this year. Loeb's Third Point and William Ackman's Pershing Square Capital Management are also down big, erasing their gains for the year.