Hedge Fund Investors Hold Their Nerve in March: Data

Date: Tuesday, April 12, 2011
Author: Reuters

Hedge fund investors largely held their nerve as the Japanese earthquake and the North African crisis weighed on markets, new data from London-listed hedge fund services firm GlobeOp shows.

While investors such as wealthy individuals and funds of funds have a reputation for swiftly pulling out cash in unstable markets, two new indexes indicated many clients opted to stay put after the March 11 earthquake sent global stocks tumbling.

The GlobeOp Capital Movement Index, which shows net flows for the month to April 1 and therefore covers the aftermath of Japan's nuclear crisis and coalition air strikes in Libya, showed a net outflow of 0.05 percent, compared with a 1.12 percent net inflow the previous month. This was the first net outflow in a year since investors started returning to hedge funds after the financial crisis, although withdrawals were much lower than Jan. 2009, when net outflows hit 15 percent after the collapse of Lehman Brothers.

"I don't see any signs that hedge fund investors have been rattled by what's happened," said GlobeOp CEO Hans Hufschmid. "If this was a real concern, people would instantaneously stop putting money into hedge funds."

The data, which covers around $135 billion of hedge fund assets under administration, or around 8 percent to 10 percent of the global hedge fund industry, shows both gross inflows and outflows rose, although outflows slightly exceeded inflows.

Meanwhile, the GlobeOp Forward Redemption Indicator, which shows the volume of clients giving advance notice to cash out as a percentage of GlobeOp's assets under administration, fell slightly to 3.26 percent from 3.36 percent when the snapshot of GlobeOp's book was taken on March 20.

The next Forward Redemption Index, due for publication on April 21, is expected to provide a more comprehensive picture of investors' reaction to the Japanese quake and the damage inflicted on the world's third-largest economy, as well as the escalation of conflict in North Africa.

"There needs to be a pattern before we can really draw any conclusions, and not just a pattern but an increasing pattern where net outflows get bigger month after month," Mr. Hufschmid. "And at the same time, the forward redemptions would need to increase too and then we could say with a degree of certainty that people are moving money away from hedge funds."

Forward redemptions as a percentage of GlobeOp assets under administration have trended significantly lower since reaching a high of 19.27 percent in November 2008.

Mr. Hufschmid said he took heart from the latest level of capital inflows which showed 3.08 percent for April, up from March and February's 2.13 percent and 2.51 percent respectively.

"In times of uncertainty people go to cash—in late 2008 and early 2009 they sold any assets they could to get into cash. If they were nervous now, they would instantly stop putting money into hedge funds. Although they can't take it out right away, they can stop putting it in right away," he said. "Gross inflows collapsed in October, November and December 2008. We see inflows now of 3.08 percent. If investors were concerned about hedge funds, inflows they would have collapsed as in late 08 and early 09. We don't see that right now."

GlobeOp announced the launch of the indexes earlier this month.

By Laurence Fletcher and Sinead Cruise