Hedge fund subscriptions hit post-Lehman high

Date: Monday, December 12, 2011
Author: Yeganeh Torbati, Reuters

* Outflows increase to 1.86 pct from 0.83 pct a month ago

* Funds attracted net subscriptions of 1.55 pct

* Investors seen sticking with managers despite low returns

LONDON, Dec 11 (Reuters) - Hedge funds look set to end 2011 with higher cumulative net subscriptions than at any time since the collapse of U.S. investment bank Lehman Brothers, as investors opt for alternative strategies to ride out stormy markets.

The GlobeOp Capital Movement Index, which tracks monthly net subscriptions to and redemptions from hedge funds managing around $170 billion of assets, advanced 1.55 points to 141.01 points this month, topping the 140-point mark for the first time since October 2008, when Lehman's demise sent markets across the world into a tailspin.

GlobeOp Chief Executive Hans Hufschmid described the rise in hedge fund investment in 2011 as surprising against the backdrop of the euro zone sovereign debt crisis but said hedge funds were seen as better bets than volatile stocks and low-yield government debt.

"If you had presented me with the euro zone scenario in the spring, I would have expected outflows from hedge funds," he said. "We have not really seen that all year. The euro zone has not really impacted the flows," he told Reuters in an interview.

Hedge funds saw a net inflow of money last month, with gross inflows rising to 3.41 percent, up from a rise of 2.84 percent a month earlier.

Gross exits from hedge funds also rose in the month to Dec. 1, doubling to 1.86 percent from 0.83 percent a month earlier, suggesting some clients were reshuffling portfolios before the new year.

Investors typically make some of the biggest changes in their strategies at the start of the year, so hedge fund data for January would likely show more dramatic shifts, Hufschmid said.

Hedge funds worldwide have failed to deliver impressive returns this year, as choppy markets made it difficult to time bets or hold onto past gains.

The average hedge fund lost 0.92 percent in November, according to Hedge Fund Research's HFRI index. Britain's blue-chip FTSE 100 index, by contrast, was down 0.7 percent in November.

But Hufschmid said many investors were increasingly backing managers over longer time frames, and were less spooked by short-term volatility.

"When (institutional investors) make a decision to increase their allocations from 5 to 10 percent over the next few years, they'll continue to do that even though (the hedge funds) are having a bad month or a bad spell," Hufschmid said.

"We don't see anything on the horizon that would lead us to believe that the capital flow sentiment is changing toward hedge funds," he said.