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March 24, 2009

Hedge Fund selling isn't over yet?

Investors in hedge funds believe the industry will see even bigger withdrawals this year than 2008, according to new survey by Deutsche Bank. As if last year's carnage wasn't enough, the LPs believe 1 in 5 hedge funds will go out of business this year.

From a Bloomberg report based on the survey:
“If 2008 was a story about performance of hedge funds, 2009 is very much going to be a story about restructuring,” said Sean Capstick, Deutsche Bank’s London-based global head of capital introduction. “Our survey indicates redemptions will continue as a phenomenon for the foreseeable future.”

...Investors worldwide pulled $155 billion out of hedge funds in 2008, marking only the second full-year of net outflow since Chicago-based Hedge Fund Research Inc. started tracking the data in 1990. The withdrawals helped pare hedge-fund assets 27 percent from a mid-2008 peak, HFR said. Because many funds only allow redemptions once a quarter, “there is a lag time consistently in outflows in the industry versus performance,” Capstick said. Investors will also seek to redeem when funds lift curbs on withdrawals, he added.

Sixty-five percent of the investors surveyed by Deutsche Bank, including funds of funds, family offices, consultants to banks, pension funds, endowments, governments and insurers, expect at least 20 percent of hedge fund managers to go out of business this year.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in