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

Whisky Business: The Ultimate Liquid Alternative Investment

Sep 15 2014 | 7:02am ET

David Robertson knows his single-malt whisky—he was the Master Distiller at the...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

The Cult of Loss Aversion: A Call to Rethink Risk in Global Macro Investing

Sep 4 2014 | 5:45am ET

In the wake of a traumatic loss, whether it is financial or personal, it is just...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

In search of the ‘new normal’ at the Fed

The Federal Reserve keeps baby-stepping toward a “normalization” of monetary policy. But just what is normal?

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.