NEW YORK (Dow Jones/AP) -- Investors pulled an estimated $32 billion out of hedge funds in July, the most since 2000, and August could be even worse, according to one report.
Redemptions may taper off in coming months, however, "barring another sub-prime-type negative event," according to TrimTabs BarclayHedge Fund report, a partnership between TrimTabs Investment Research, a California research group known for its estimates of mutual fund flows, and BarclayHedge, a hedge-fund data company.
Hedge funds have an estimated $1.9 trillion in assets, the data t Publproviders said. Complete data for August won't be available until later in September, but outflows could be even greater, they said.
Funds of hedge funds saw an estimated $55 billion, or 5 percent of their estimated assets of $1.2 trillion, flowing out, according to the report. Through June, those funds, which invest in hedge funds, had experienced estimated inflows of $162 billion, the report said.
In contrast, direct investors placed an estimated $23 billion into regular hedge funds, TrimTabs and BarclayHedge said.
"We believe de-leveraging and risk reduction by funds of hedge funds was a major cause of the turbulence in the credit markets and the equity markets in July and August," said Charles Biderman, chief executive of TrimTabs. "Assuming market volatility does not spike again this month, the worst of the selling in the hedge-funds world is probably finished."
It is likely that the requests for redemptions from funds of hedge funds triggered the hedge-fund unwinding that knocked more than $2 trillion off the market caps of the U.S. stock market and probably another $2 trillion off the market cap of non-U.S. stock markets, Biderman said.
Most hedge funds require a 30-day to 60-day redemption notice, so requests for July redemptions actually began in May and June, he said. In addition, the drop in equity markets, which began during the week of July 23, started when several funds said publicly that they couldn't meet redemption requests, he said.
Hedge funds knew by early August what the amount of redemption requests would be by the end of August for September and October, Biderman said.
However, he said, more massive de-leveraging in hedge funds is unlikely unless some unexpected bad news materializes this month.
"In our opinion, funds of hedge funds -- even those that do not use leverage -- make financial markets more volatile than they would be otherwise," the report said. "To justify their fees, funds of funds tend to trade their assets frequently. In addition, many funds of funds leverage their assets using bank debt. Add leverage to an industry in which countless imitators copy yesterday's unique investment style, and the law of unintended consequences rears its ugly head."
The new TrimTabs BarclayHedge Flow Report tracks the monthly flows of 15 hedge-fund sectors. It is based on the BarclayHedge database, which covers more than 5,500 hedge funds, or one-third of the entire hedge fund universe. Using that universe as its sample, TrimTabs then estimates total hedge-fund flows. |
