Hedge Funds See Huge Outflows In July, August May be Worse

Sep 4 2007 | 2:00am ET

Hedge funds, with an estimated combined $1.9 trillion in assets, posted an outflow of $32 billion in July, the largest outflow since 2000, according to a report by TrimTabs Investment Research and BarclayHedge. August hedge fund outflows, for which complete data is not yet available, could be even greater, according to the report.

The report speculates that it was the estimated $55 billion in July redemptions by funds of hedge funds that likely sparked the dislocation in the equity markets in the summer. In July, while regular hedge funds experienced an estimated inflow of $23 billion, the $55 billion in redemptions by funds of hedge funds was equal to nearly 5% of their estimated assets of $1.2 trillion.

“We believe de-leveraging and risk reduction by funds of hedge funds was a major cause of the turbulence in the credit markets and the equity markets in July and August.  Assuming market volatility does not spike again this month, the worst of the selling in the hedge fund world is probably finished,” said TrimTabs CEO Charles Biderman. 

On a more positive note, redemptions should dwindle in succeeding months, barring another sub-prime-type negative event, which would mean good news for the equity markets, the report said.
 
Biderman, together with Sol Waksman, president of BarclayHedge, said that since most hedge funds require a 30 to 60 days redemption notice that requests for July redemptions actually began in May and June. Furthermore, the plunge in global equity markets that began during the week of Monday, July 23, started when several funds announced they could not meet redemption requests.
 
“Therefore, it is likely the fund of hedge funds requests for redemptions triggered the hedge fund unwinding that knocked more than $2 trillion off the market cap of the U.S. stock market and probably another $2 trillion off the market cap of non-U.S. stock markets,” said Biderman.
 
“According to hedge fund industry sources we contacted late last week, hedge funds knew by early August what the amount of redemption requests would be by the end of August for September and October.  Therefore, more massive de-leveraging in the hedge fund world is unlikely unless something deemed unexpected bad news materializes this month,” said Biderman.


In Depth

Fitch Says Alternative Asset Managers 'Stable' Despite Dry Powder

Nov 20 2014 | 9:30am ET

Ratings agency Fitch says the outlook for seven publicly traded alternative asset...

Lifestyle

Cohen Buys $101 Million Sculpture

Nov 12 2014 | 9:17am ET

Steven Cohen was the sole bidder for a rare Alberto Giacometti sculpture at Sotheby...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.