Investors cut back on hedge funds despite rally

LONDON Thu Oct 11, 2012 6:16am EDT

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LONDON (Reuters) - Hedge fund clients pulled out more money than they put in over the past month in spite of a strong performance, in a possible sign of nerves that the parlous state of major economies could hit their returns.

Net outflows from hedge funds, as measured by the SS&C GlobeOp Capital Movement Index, which tracks monthly net subscriptions to and redemptions from funds, were 0.67 percent of the total during the month to October 1.

The withdrawals are only the third month of net outflows this year - July's figure showed net outflows of 1 percent while January's figure saw investors withdraw 0.71 percent of the total - and come during a month when most hedge funds made money.

"Inflows have remained steady, while outflows have spiked in line with quarter-end rebalancing," Bill Stone, Chairman and Chief Executive Officer at SS&C Technologies, said.

October's figure is affected by investors rebalancing their portfolios at quarter-end, but the same month in 2011 and 2010 saw inflows of 0.3 percent and 1.12 percent respectively.

Hedge funds ended the third quarter strongly after equity-focused managers jumped on rallying stock markets and credit funds made further gains betting on U.S. mortgage-backed securities.

The SS&C GlobeOp Hedge Fund Performance Index rose 1.11 percent during September, bringing 2012 gains to 7.96 percent.

Although the rise will be welcomed by the industry, coming after the average fund ended last year in the red for the second year of negative performance in four, hedge funds still trail stock indexes such as the S&P 500, which is up some 16 percent.

The relatively poor performance has not always deterred investors over the past year, however.

The Capital Movement Index reached an all-time high at the start of September, underlining how more investors are turning to hedge funds instead of traditional equity and bond investments.

SS&C GlobeOp's data covers around $187 billion of hedge fund assets under administration, or around 8 to 10 percent of the global hedge fund industry.

(Editing by Laurence Fletcher and Greg Mahlich)

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