Hedge Funds Lost $25 Billion Through Redemptions in February

By Tomoko Yamazaki

March 19 (Bloomberg) -- Investors pulled out a total of $25 billion from hedge funds in February, the seventh consecutive month of redemptions, as stocks worldwide tumbled amid signs a global recession is deepening, an industry report shows.

Total hedge-fund assets stood at $1.36 trillion at the end of February, down about $600 billion from their peak in June 2008, according to a monthly asset flow report by Eurekahedge Pte. In January, final net withdrawals totaled $95 billion, according to the Singapore-based research firm. The February figures are based on 71 percent of the funds reporting the month’s performances as of March 16, the report said.

“The industry has gotten smaller on both a regional and global basis and at this point, those still invested in hedge funds are by-and-large professional investors who are focused on the industry for the long term,” said Rory Kennedy, chief operating officer of United Managers Japan Inc., a Tokyo-based hedge fund adviser. They “will benefit as such from the uncorrelated returns that the less-crowded space can now deliver.”

The Eurekahedge Hedge Fund Index tracking more than 2,000 funds worldwide lost 0.8 percent last month, the report shows. The loss compared with a 10 percent slide in the MSCI World Index, which tracks stocks in 23 developed nations, and a 3.5 percent decline by the Reuters Jefferies CRB Index, a benchmark for commodities.

More Redemptions

In February, investors allocated $4.7 billion to hedge funds, mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall, the report said. The funds lost $11.5 billion through market losses, while they made $7.1 billion through market gains, Eurekahedge said.

“We continue to expect net redemptions over the next few months, especially out of funds with lock-ups expiring towards the end of the first quarter, and those that had either suspended or gated their redemptions over recent months,” Eurekahedge said in the report.

A record number of funds, including Citadel Investment Group LLC and Fortress Investment Group LLC, limited client withdrawals last year, angering investors who wanted to exit as the industry produced its worst annual performance on record.

Citadel, the $13 billion hedge-fund firm run by Kenneth Griffin, will decide each quarter whether to make payments from its two largest funds, Griffin, 40, said in an investor letter in February. Clients will be notified of any amounts available for redemption.

Eurekahedge released its preliminary report last week. Final figures for February performances and asset flows will be out next month.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net
Last Updated: March 18, 2009 21:03 EDT