Hedge fund outflows seen at just 6 percent in '08

LONDON (Reuters) - The hedge fund industry could see net client outflows of just 6 percent during the whole of 2008, according to analysts at Citi, who believe the UK's traditional fund industry is shrinking at a faster rate.

In a research note on Thursday Citi said it expected around $100 billion (67 billion pounds) of hedge fund redemptions during the fourth quarter, much lower than many commentators expect, meaning total assets, currently estimated at around $1.7 trillion, would fall 31 percent during 2008 to $1.3 trillion.

Citi expects most of the year's decline for hedge funds to come from poor performance, with only 6 percent coming from redemptions.

Citi expects the UK long-only industry to shrink by 33 percent this year to 313 billion pounds.

Last week Man Group (EMG.L) Chief Executive Peter Clarke said hedge fund redemptions of between a quarter and third at the end of the year would be "the right sort of figure".

"No doubt hedge funds are suffering large redemptions and liquidations, but the decline in industry-wide assets under management is being matched in the long-only space," the Citi note said.

"Hedge are performing better than long-only (funds). Hedge funds have failed to deliver positive non-correlated returns in 2008, but they have delivered some preservation of capital.

It added that this raised the question "where are all those assets under management going to go if they do redeem?"

Citi's comments come as the hedge fund industry faces its toughest challenge to date, in the form of highly volatile markets, poor performance and outflows.

Hedge funds have lost 15.48 percent in performance terms in the first 10 months of the year, according to Hedge Fund Research, after losses of more than 5 percent in September and October.

(Reporting by Laurence Fletcher, editing by Will Waterman)