Hedge fund exit requests jump after lackluster year

Date: Friday, December 21, 2012
Author: Laurence Fletcher, Reuters

Client demands to pull money out of hedge funds rose to their highest level in more than three years in December, at the end of a year that has left many investors disappointed with 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 assets under administration, measured 6.19 percent in December.

This was the highest level since September 2009 and almost double the level just two months ago. A year ago, the index measured 4.58 percent.

After a tough time during the credit crisis, hedge funds have managed to avoid a third year of losses in five in 2012, but their gains have lagged stock market indexes.

The average hedge fund was up 4.89 percent in the first 11 months, according to Hedge Fund Research's HFRI index, compared with a 14.94 percent total return from the S&P 500.

Bill Stone, chairman and chief executive of SS&C Technologies, said fears that gains from hedge fund portfolios could be taxed at higher rates in the United States may have driven the increase.

"December is ... the final chance to change your tax liability. People are generating the cash to be able to make their quarterly estimated tax payment. A lot of people are going to make tax-influenced decisions," he said in an interview.

Stone said the numbers did not mark the end of inflows into the hedge fund industry. "The structural problems of pension plans and retirement plans means everyone is starving for yield."

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.