Cyprus worries may boost hedge fund exit requests

LONDON Thu Mar 21, 2013 8:45am EDT

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LONDON (Reuters) - Client demands to pull money out of hedge funds may rise further from a three-month high in March as investors grow nervous over Cyprus's debt crisis, said hedge fund administrator SS&C GlobeOp.

SS&C GlobeOp's Forward Redemption Indicator (FRI), a monthly snapshot of clients giving notice to withdraw their cash as a percentage of assets under administration, measured 4.33 percent in March.

This was more than double January's level and above the 3.23 percent seen a year ago.

"There's been volatility in markets, so you're going to see fund redemptions correlated with what's happening there," said Bill Stone, chairman and chief executive of SS&C Technologies.

"Cyprus has had an impact on short-term thinking," he said adding that he expected a higher figure in next month's FRI.

Markets have wobbled this week on concerns about whether the Mediterranean island can secure a rescue package and avoid default on its debt.

However, redemption requests are still nowhere near the peak of more than 19 percent seen in late 2008 in the aftermath of the collapse of U.S. investment bank Lehman Brothers. Levels have not topped 10 percent since September 2009.

SS&C's Stone added that the April 15 deadline for most individual U.S. tax returns could also push outflows higher as investors raise cash for tax bills.

Exit demands in March were also boosted by the looming end of the quarter, when some hedge funds allow clients to access their money.

Hedge funds have profited from a sharp rally in financial markets since last summer, but some investors are disappointed that many hedge funds have failed to match equity markets.

The average hedge fund rose 6.4 percent last year compared with a 16 percent total return from the S&P 500, according to Hedge Fund Research.

In the first two months of this year funds gained 2.7 percent, compared with a 6.6 percent gain from the S&P.

Around 10 percent of the global hedge fund industry is covered by SS&C GlobeOp's data.

(Editing by Chris Vellacott and Helen Massy-Beresford)

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