October Hedge Fund Redemptions Triple to $9B

Dec 12 2011 | 12:55pm ET

Investors pulled $9 billion from hedge funds in October, more than triple September’s $2.59 billion total, according to the latest research from Barclay Hedge and TrimTabs Investment Research.

Total industry assets declined for the third straight month, falling to $1.66 trillion in October from $1.73 trillion in September.

“Investors seem to have lost patience with lackluster hedge fund returns,” says Sol Waksman, founder and president of BarclayHedge. The Barclay Hedge Fund Index did rise 3.5% in October, bouncing back from five straight monthly declines. Assets are at their lowest since January 2010.

In terms of strategies, the big losers were macro funds, which lost 1.6% or $1.8 billion; and equity long/short funds, which shed 1.5% or $2.6 billion.

The only funds to report inflows were equity long bias (up 0.6%, or $600 million) and merger arbitrage (up 1.0%, or $200 million).

“This is the second-straight inflow in this strategy [merger arbitrage], which had considerable outflows in the previous 10 months, said Mirochnik. “These funds posted the heaviest outflow in the past 12 months at over $5 billion (31.8% of assets) while posting the second highest return out of all categories at 2.6%.”

Region-wise, Latin American hedge funds have turned in the best performance this year, returning 3.9%. That said, they also lost 6.8% of their assets this year. U.S.-based funds gained 4.6% of assets in the past year while returning 2.3%, the second-best performance of all regions tracked.

Asian funds (excluding China and Japan) attracted 21.0% of assets in the past year, leading all regions tracked by BarclayHedge and TrimTabs. The funds, which returned 13.3% in 2010, have been flat this year.

“This is not surprising to us, as investors frequently gain interest only after a period of exceptional performance,” said Mirochnik.  “The cliché is often all too true: The ‘What-Have-You-Done-For-Me-Lately’ crowd often mistimes its investment entry points.”

The research shows bearish sentiment on the S&P 500 decreased to 35.9% in November from 41.4% in October, while bullish sen

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