Investors give hedge funds cold shoulder in October

Date: Friday, December 7, 2007
Author: Svea Herbst-Bayliss, Reuters

BOSTON, Dec 6 (Reuters) - Investors pulled $2.8 billion out of hedge funds in October, ignoring promises by these loosely regulated portfolios to make money in all markets, new data released on Thursday show.

TrimTabs Investment Research and BarclayHedge said the fast growing hedge fund industry received only $16 billion in new assets in October, the lowest inflows since January.

All of the money went into so-called funds of funds that make hedge fund investments. Hedge funds themselves faced redemptions during the month.

These portfolios, including those run by UBS, Man Investments and Permal Asset Management, took in an estimated $18.8 billion. Investors pulled out an estimated $2.8 billion of their direct hedge fund investments, the two companies said.

In September, the industry took in $18.6 billion in new money, the groups reported.

Signaling new caution amid credit market problems and heavy losses at individual hedge funds, investors in October flocked to middlemen to make alternative investments. Funds of hedge funds reduce the investment risk by picking a group of hedge funds.

"The hedge fund industry's 3.5 percent return in October was the highest in the past seven years," said Sol Waksman, chief executive officer of BarclayHedge Ltd. "Nevertheless, recent market turmoil has made investors a bit more cautious about investing in hedge funds."

Still, hedge funds remain a cornerstone to many investor portfolios during turbulent times, Charles Biderman, TrimTabs' chief executive officer said.

"Although October inflow was down a bit from prior months, it is stunning to note that year to date, hedge fund flows of $279 billion are more than three times equity mutual fund flows of $79 billion," he said.

As expected, funds specializing in fixed income strategies were the least popular, losing an estimated $2.2 billion in assets. In the first 10 months of the year, these types of funds returned only 2.8 percent, the lowest of any hedge funds.

Equity-market neutral funds, seen as being especially vulnerable to recent stock market gyrations, took in $3.7 billion in new funds in October after seeing $3.5 billion leave in September.

Hedge funds are not required to disclose returns or asset flows to industry groups or regulators, so the data, when reported on a voluntary basis, is often reviewed closely for investment trends.

The groups speculated that flows were strong in November because investors were relieved to see better performance numbers in October than the losses posted during the height of the credit crisis in August. (Reporting by Svea Herbst-Bayliss; Editing by Andre Grenon)