Worries on U.S. taxes drive hedge fund exits to near three-year high

Date: Wednesday, November 21, 2012
Author: Costas Pitas, Reuters

The demand from investors to pull money out of hedge funds neared a three-year high this month, industry data showed, amid concerns over U.S. taxation of wealthy individuals under President Barack Obama and lackluster hedge fund performance.

Hedge fund administrator SS&C GlobeOp's forward redemption indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of its assets under administration, measured 5.19 percent in November.

The rate compares to 3.19 percent last month and 3.44 percent in November 2011.

SS&C GlobeOp cited uncertainty in the markets and Obama's election victory as helping propel the number of client demands to pull money out of hedge funds to their highest November recording since 2008 and the highest overall figure since December 2009.

Bill Stone, chairman and chief executive of SS&C Technologies, said fears that gains from hedge fund portfolios could be taxed at higher rates under Obama may have driven this month's figures.

The demand for money ahead of the holiday season is partly responsible for the figure, and economic uncertainty is also weighing heavily on investors, said Stone.

"You have a lot of uncertainty in the market today, and the fiscal cliff, the changes in tax rates, the re-election of the president in the U.S. have really given people some incentive to try to take as many gains in 2012 as possible. People are positioning throughout November and December," he said.

HFRX Global Hedge Fund Index shows that hedge funds gained 1.76 percent this year, which some commentators see as disappointing.

The demand for redemptions hit a high-water mark in 2008, with the GlobeOp Forward Redemption Indicator hitting 19.27 percent in the wake of the collapse of U.S. investment bank Lehman Brothers. Levels have not topped 10 percent since September 2009.

Around 10 percent of the global hedge fund industry, worth $187 billion of hedge funds under administration, is covered by SS&C GlobeOp's data.

Looking ahead to 2013, Stone said: "I think the relative governments around the world will come back to getting their books somewhat in order, and as they do I think the money that is sitting on the sidelines will come back into all kind of markets and the hedge funds will benefit from that a lot."