Slow hedge fund redemptions may accelerate, study suggests

The hedge fund industry received mixed news today. One report found investors were pulling money out at the slowest rate in four years, but another revealed a sharp increase in the proportion of investors planning to cut their allocations.

And for the onshore hedge fund industry the news was generally bad – only 15% of investors with offshore hedge fund allocations plans to transfer their money to regulated products this year.

The finding about low withdrawal levels came from fund administrator GlobeOp, which said its investing clients have filed to redeem just 1.85% of the $173bn they have in hedge funds – the lowest percentage since GlobeOp started tracking the measure in 2008.

The administrator attributed the historically low figure, down from 4.58% in December, to “typical seasonal reallocations of investments, as investors take money out in January and redeploy it in February and March”.

This echoed findings of a recent study from Barclays Capital, which predicted investors would move $300bn of assets between hedge funds this year.

But a survey today from SEI gave more troubling news to the $2trn industry.
According to its poll of senior managers at 105 hedge fund industry firms, SEI found a 30% drop over 12 months in the proportion of investors planning to increase their allocations this year (from 54% to 38%).

There was a 27% jump – from 11% to 15% – of investors expecting to lower allocations.

This may be because the investors said ‘performance’ was the main challenge investing in hedge funds – and the industry had its second most disappointing year (-4.8%) since data monitor Hedge Fund Research started publishing figures in 1990.

Standard & Poor’s Global Broad Market Index of all shares did worse, however, falling 10%, while share markets excluding the US fell 16.6%.

Getting ‘absolute returns’ was the main goal of nearly one third of respondents to the SEI hedge fund survey, conducted in September and October. It replaced ‘non-correlation’ as top response a year earlier.

The next three most popular goals in hedge fund investing were all about risk-mitigation – accessing non-correlated strategies, diversification, and lowering volatility.

 

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