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Data from more than 5,000 hedge funds in the BarclayHedge database estimated that the hedge fund industry (excluding CTAs) shed $39.1 billion (-1.3% of assets) in September, reversing inflows of $21.5 billion (0.7% of assets) the month before.

Industry assets dipped to $3.06 trillion in September, down from August's all-time high. Weak demand for hedge funds contrasted with strong demand for equities in September, when U.S. stock indexes hit record heights, according to the Barclay Fund Flow Indicator, a monthly big-picture report on the health of the alternative investments industry.

Though U.S. stocks surged and oil prices rallied to a four-year high in September, other economic indicators underscored the gloomy outlook of the hedge fund industry.

"Hedge fund investors had cause for skepticism with rising interest rates, increasing U.S. deficits in spite of a booming economy, and a slowdown in China negatively impacting emerging economies worldwide," said Sol Waksman, founder and president of BarclayHedge.

Waksman noted that September's redemptions shrank year-to-date hedge fund inflows to $2.7 billion (0.1% of assets). By contrast, the industry raked in $94.8 billion (3.4% of assets) in the first nine months of 2017.

At the sector level, Sector Specific funds had the biggest 12-month inflows at $15.8 billion (11.6% of assets). Macro funds had the largest 12-month redemptions at $12.1 billion (-5.5% of assets).

At the regional level, hedge funds based in the U.S., the U.K. and their respective offshore islands suffered heavy outflows in September. Investors pulled $36.1 billion (-2.2% of assets) out of U.S. funds, while UK-based funds redeemed $11.6 billion (-2.0% of assets).

"Except for a trickle of inflows to Canadian hedge funds, all the global fund categories we track lost assets in September," Waksman said. "Continental Europe funds shed $2.8 billion (-0.4% of assets) in September, while Latin America funds gave up $2.9 billion (-21.8% of assets)."

In the managed futures sector, redemptions from Commodity Trading Advisor (CTA) funds doubled to $300 million (-0.8% of assets) in September from $150 million (-0.04% of assets) the month before.

"CTA demand has been tepid since the U.S. dollar began a strong rally in March, though things look better over a wider time frame," Waksman said. "CTAs added $11.9 billion (3.4% of assets) year-to-date and $15.9 billion (4.6% of assets) over the trailing 12 months."