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Fears of record hedge fund withdrawals
By James Mackintosh in London
Published: March 23 2009 23:32 | Last updated: March 23 2009 23:32
Hedge fund investors believe the industry will see even bigger withdrawals this year than last, when record levels of cash were pulled from the sector.
A survey of investors by Deutsche Bank found a third expect more than $200bn to be withdrawn, after a net $155bn was taken out last year, according to calculations by Chicago consultancy Hedge Fund Research.
Only a quarter of investors expect net inflows into the industry, and 82 per cent of the 1,000 surveyed said redemptions were the biggest issue hedge fund managers face.
Deutsche found that most investors expected more than a fifth of hedge funds to go out of business this year, following a record year for closures last year, when performance was its worst on record.
However, Sean Capstick, head of capital introductions at Deutsche's prime brokerage, said the big managers were likely to survive as they could afford the expensive systems and controls investors increasingly demand.
"The industry is really moving away from being a cottage industry to being an institutional industry," he said.
The survey, which covered investors with $1,100bn invested in alternative assets, found they were increasingly demanding better transparency and rating risk management as more important than a manager's pedigree for the first time.
"People want to know where their money is and what it is invested in," Mr Capstick said.
As part of this trend managed accounts, where investors have their own account run by a manager, rather than putting money into a fund, are expected to grow sharply. Several big managers who have historically rejected managed accounts have recently begun accepting them.
Trading in second-hand hedge funds is also expected to grow sharply, as blocks on withdrawals by many funds force investors in need of cash to sell to others at a discount.
There were few bright spots in the survey, but an expected reduction in the cash held from $294bn to $212bn raised the prospect of some new investment in funds.
Those specialising in global macro (investing in interest rates, markets and currencies), distressed companies, long/short credit trading and convertible bond arbitrage were listed as most popular with investors. But more than 40 per cent of those surveyed planned to reduce their exposure to merger arbitrage and event-driven funds.
