‘Fund of funds’ redemptions soar in Q1 | FT Alphaville

‘Fund of funds’ redemptions soar in Q1

Hedge funds may be faring better now than they were in the fourth quarter of 2008,  but it seems the general investor backlash against high fees and risky exposure continues to thwart the ‘fund of funds’ part of the industry (what with their double fees etc.)

In its latest findings, Hedge Fund Research, an industry data provider, estimates investors redeemed up to $104bn from hedge funds in the first quarter, versus the record $152bn withdrawn from the industry in the fourth quarter of 2008. The first-quarter figure makes up some 7.4 per cent of industry assets.

However, here’s the clincher: withdrawals from ‘fund of hedge funds’ specifically totalled $85bn in the first quarter — that far exceeds the fourth quarter 2008 redemption of $50bn and accounts for the majority of capital withdrawn from the hedge fund industry overall.

As far as performance goes, it’s a different Q4 story. As HFR states:

Funds of Hedge Funds, which experienced a record performance decline of -21.3 percent in 2008, posted a performance gain of 0.47 percent in the first quarter, in line with overall industry performance.

Partially offsetting the industry asset decline, the HFRI Fund Weighted Composite Index posted a gain of 0.53 percent for the quarter, resulting in a performance-based gain for the industry of approximately $28 billion. This figure is in sharp contrast to the performance-based losses of more $162 billion which occurred in 4Q 2008, during which the HFRI Fund Weighted Composite lost over 9 percent.

Nevertheless these charts still tell a deteriorating story in the first quarter as far as fund flows go — total industry capital overall declining to $1,3300bn, $600bn off its peak. Click to enlarge.

Q1 Hedge Fund flows - HFR

Q1 Fund of fund flows - HFR

Related links:
Forex trading booms in 2008
– FT Alphaville
EU draft rules for hedge funds attacked
– FT