Hedge Fund Flows Swing Negative In Q4

Jan 20 2012 | 1:20pm ET

It took all year, but hedge fund investors appeared to get the message by the end of 2011, redeeming more money than they put into the industry in the fourth quarter.

Investors yanked about $127 million from the industry in the fourth quarter, a drop in the bucket for the $2 trillion industry but the first net outflow for it since the second quarter of 2009, according to Hedge Fund Research. Investors pulled almost $150 billion from hedge funds during the first half of that year.

The withdrawals capped the second-worst year ever for hedge funds, in terms of performance, one in which the average fund lost about 5%. Investors had become decreasingly enthusiastic with their hedge fund allocations as the year creaked on, with the net inflow shrinking in each of the previous three quarters. Still, hedge funds took in about $70 billion in new money this year, mostly in the first half, which saw the two best quarters in terms of inflows since the financial crisis.

According to HFR, about 60% of hedge funds suffered outflows in the quarter.

Despite the fourth quarter outflow, hedge fund assets actually grew in the fourth quarter by $40 billion, thanks to performance gains during the year's last three months.

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