Investors punish hedge funds for poor returns

By Svea Herbst-Bayliss

BOSTON, Feb 7 (Reuters) - Investors punished hedge funds for poor performance in December, when they dramatically cut the new money they sent to its lowest level in two years, new data released on Thursday show.

Pension funds, endowments and wealthy individuals put only $2.3 billion into hedge funds in December, down from $21.8 billion in November, according to data from TrimTabs and BarclayHedge, which track flows and performance.

"Flows tend to follow performance, and hedge funds are no exception," said TrimTabs Chief Executive Charles Biderman.

"In November, hedge funds lost 1.7 percent, which was their worst performance since September 2001," he said. "In December, the inflow into hedge funds was the lowest in two years."

In October investors added $16 billion after putting in $18.6 billion in September, the data show.

Because hedge funds are only loosely regulated, they are not required to report performance or flow data to trackers. All figures, reported on a voluntary basis, are watched closely for clues to trends.

Extending an already established pattern, so-called hedge funds of funds, which aim for safer investing by selecting a number of portfolios, again pulled in the lion's share of new money.

Data show fund of fund managers, which include Ivy Asset Management and Legg Mason's (LM.N: Quote, Profile, Research, Stock Buzz) Permal unit, pulled in an estimated $9.5 billion, while investors pulled out an estimated $7.1 billion out of their direct hedge fund investments.