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Hedge fund redemptions more than triple in october; assets fall for third consecutive month

Monday, December 12, 2011
BarclayHedge and TrimTabs Investment Research reported today that hedge fund redemptions in October were $9 billion, more than triple September's $2.59 billion outflow. Industry assets decreased to $1.66 trillion in October from $1.73 trillion in September, the third straight monthly decline.

"Investors seem to have lost patience with lackluster hedge fund returns,"says Sol Waksman, founder and President of BarclayHedge. The Barclay Hedge Fund Index did rise 3.5% in October, bouncing back from five straight monthly declines. Assets are at their lowest since January 2010.

For October, the biggest assets losses in terms of percentage were from Macro funds, down 1.6%, or $1.8 billion and Equity Long/Short funds, down 1.5% or $2.6 billion. The only funds with inflows were Equity Long Bias funds and Merger Arbitrage funds. The former, had the largest inflows, up 0.6% or $600 million, said Leon Mirochnik, analyst at TrimTabs. Merger Arbitrage hedge funds posted the second-highest inflow at $200 million (1.0% of assets).

"This is the second-straight inflow in this strategy, which had considerable outflows in the previous 10 months, said Mirochnik, adding, "These funds posted the heaviest outflow in the past 12 months at over $5 billion (31.8% of assets) while posting the second highest return out of all categories at 2.6%."

Hedge funds based in Latin America have returned 3.9% in the past year, the best performance of all the regions tracked by BarclayHedge and TrimTabs. Nevertheless, they lost 6.8% of their assets this year. U.S. funds gained 4.6% of assets in the past year while returning 2.3%, the second-best performance of all regions tracked.

In contrast, hedge funds based in Asia excluding China and Japan raked in 21.0% of assets in the past year, the heaviest inflow of the regions tracked by BarclayHedge and TrimTabs. This could be partially attributed to the fact that these funds posted a 13.3% return last year, though they have posted a flat return this year.

"This is not surprising to us, as investors frequently gain interest only after a period of exceptional performance," notes Mirochnik. "The cliche is often all too true: the 'What have you done for me lately' crowd often mistimes its investment entry points."

The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals that managers have become less bearish on domestic equities in the past four weeks. Bearish sentiment on the S&P 500 decreased to 35.9% in November from 41.4% in October, while bullish sentiment dipped from to 34.5% from 31.4%. The survey of hedge fund managers also reveals that the managers are overwhelmingly optimistic that the euro will survive the sovereign debt crisis plaguing Europe, though they have no illusions about the short-term fate of the euro's value: nearly 65% recommend shorting the euro vs. the dollar for the remainder of 2011.

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