HSBC Sees 'Tipping Point' in Hedge Fund Outflows

Date: Tuesday, April 14, 2009
Author: Laurence Fletcher, Reuters.com

HSBC Global Asset Management says it is finally seeing inflows into some of its hedge funds and believes it may have reached a "tipping point" after a tough period of client withdrawals.

Bill Maldonado, head of alternative investments at the firm's active investment arm Halbis, said in an interview that the wider hedge funds industry was likely to be seeing a similar stabilization in flows.

"We saw a lot of redemptions in the fourth quarter of last year, we saw far fewer redemptions in the first quarter of this year, and we're now just seeing the first net inflows into some of our strategies, and I suspect that's fairly typical," Mr. Maldonado said on Thursday [April 9]. "I think for our combination of strategies we've got to some kind of tipping point."

His comments follow a tough period for the once-booming $1.4 trillion hedge fund industry, which last year posted record poor performance with an aggregate 19.02% loss, according to Hedge Fund Research.

In the fourth quarter of 2008 investors pulled out a net $150 billion, while many investors were unable to get out all their money because some funds had limited redemptions.

However, in the first quarter of this year the HFRX Global Hedge Index rose 0.68%, outperforming equities and raising the prospect of stronger industry performance in 2009.

"Generally we seem to be at the point where if you've got a good strategy with good performance you have a much better chance now of seeing inflows," Mr. Maldonado said.

He said the most popular strategies with clients appear to be global macro, which bets on currencies, shares and bonds and which fell a better-than-average 4.62% last year according to Credit Suisse/Tremont. Also finding favor are market neutral strategies, which aim to have little or no exposure to overall market movements.

Mr. Maldonado said institutional investors, who are generally viewed as having been slower to sell hedge funds than high net worth individuals during the credit crisis, are making up a bigger share of the firm's client base.

"Is it because we're going after more institutional business? Not particularly. Is it because some institutions are more long term? Yes, I suspect that's it," he said. "They are a bit less impacted by what's happened."

By Laurence Fletcher