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Hedge fund investors ramp up mid year redemptions and for first month inflows don't keep pace

Tuesday, August 09, 2011
Opalesque Industry Update – Mid-year investor redemptions at hedge funds saw an increase in July, just as hedge funds started to show gains in 2011. HFN reports that with hedge fund managers returning an average of 0.82% in July, investors decided for the first time in over a year that they would be pulling more money than they would be allocating.

Although hedge fund assets increased overall in July (by 0.67% to $2.57tln), this was primarily performance driven. Investor inflows represented $8bn and the remaining $25bn was driven by performance. However, the uptick in redemptions which began in May, outpaced allocations for the first time in July. “Early indications show redemptions were greatest among equity related strategies and in particular statistical arbitrage, event driven, and emerging markets,” says a release by HFN Hedge Fund Industry Research.

The next big redemption dates for the hedge fund industry will be 45 days and 30 days before the end of the quarter, which means any incoming notifications will be seen between now and the end of this month. That will likely indicate how investors truly feel about hedge fund investing.

Commodities focused funds were the winner in July gaining +3.72% (led by energy funds) and Russia and Australia focused funds also performed well notching +2.02% and +1.85% respectively.

Although emerging markets are seeing some of the higher redemption levels, they did perform positively on average during the month with China and India up slightly but Brazil and Latin America focused funds down significantly (-3.10% and -2.17% respectively). In emerging markets fixed income continues to outperform equity funds.

And as was the case in most indices, credit is a much better place to be than equities. Distressed and fixed income arbitrage strategies performed best, +1.29% and +0.68%. Long/short equity funds (-0.22%) continued to disappoint while market neutral equity funds (+0.66%) have continued to shine relative to other equity groups. The HFN Short Bias Index posted its third consecutive positive month of performance, +1.79% in July.

Kirsten Bischoff

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