Hedge Funds Lost $25 Billion in February on Recession

Date: Thursday, March 19, 2009
Author: Tomoko Yamazaki, Bloomberg.com

Investors pulled out a total of $25 billion from hedge funds in February, the seventh consecutive month of redemptions, as stocks worldwide tumbled and a global recession deepened, an industry report shows.

Total hedge-fund assets stood at $1.36 trillion at the end of February, down about $600 billion from their peak in June 2008, according to preliminary data from Eurekahedge Pte. In January, final net withdrawals totaled $95 billion, according to the Singapore-based research firm.

“The industry has gotten smaller on both a regional and global basis,” said Rory Kennedy, chief operating officer of United Managers Japan Inc., a Tokyo-based hedge fund adviser. “Those still invested in hedge funds are by-and-large professional investors who are focused on the industry for the long term.”

The Eurekahedge Hedge Fund Index tracking more than 2,000 funds worldwide lost 0.8 percent last month, the report shows. The loss compared with a 10 percent slide in the MSCI World Index, which tracks stocks in 23 developed nations, and a 4 percent decline by the Reuters Jefferies CRB Index, a benchmark for commodities.

By region, a measure tracking Japan-focused funds lost 1.5 percent, the biggest drop, as economic data signaled the world’s second-largest economy slipped further into a recession. The Eurekahedge North American Index declined 1.3 percent, while the index tracking European funds fell 1.2 percent. The Eurekahedge Latin American Hedge Fund Index was the only one to rise in February, gaining 0.5 percent, it said.

More Redemptions

In February, investors allocated $4.7 billion to hedge funds, mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall, the report said. The funds lost $11.5 billion through market losses, while they made $7.1 billion through market gains, Eurekahedge said.

“We continue to expect net redemptions over the next few months, especially out of funds with lock-ups expiring towards the end of the first quarter, and those that had either suspended or gated their redemptions over recent months,” Eurekahedge said in the report.

A record number of funds, including Citadel Investment Group LLC and Fortress Investment Group LLC, limited client withdrawals last year, angering investors who wanted to exit as the industry produced its worst annual performance on record.

Citadel, the $13 billion hedge-fund firm run by Kenneth Griffin, will decide each quarter whether to make payments from its two largest funds, Griffin, 40, said in an investor letter in February. Clients will be notified of any amounts available for redemption.

Eurekahedge released its preliminary report last week. The latest February figures are based on 71 percent of the funds reporting the month’s performances as of March 16, the report said. Final figures for February performances and asset flows will be out next month.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net