November 20, 2008 / 9:42 PM / 11 years ago

Hedge fund assets shrink 9 pct, clients pull $40 bln

BOSTON, Nov 20 (Reuters) - Hedge-fund assets shriveled by 9 percent last month, sinking to their lowest level in two years as stocks tumbled and investors withdrew a record $40 billion.

Hedge funds around the world now manage an estimated $1.56 trillion, down from $1.72 trillion at the end of September, Chicago-based tracking firm Hedge Fund Research said on Thursday. Market losses cut assets by $115 billion last month.

This is the smallest the industry has been since December 2006, HFR said.

Investors withdrew more money in October than any other month as pension funds, endowments, and wealthy investors punished hedge-fund managers for delivering their worst-ever returns.

In September and October, the average fund lost 12 percent, leaving it down 16 percent in the first 10 months of the year. The broader Standard & Poor’s 500 index dropped 35 percent through October.

This year’s statistics mark a sharp contrast from last year’s when hedge funds pulled in a record $195 billion in assets, HFR said.

Last month, investors withdrew $22 billion from so-called funds of hedge-funds where managers construct portfolios for their clients aimed at reducing the risk of hedge fund investments. As a group, funds of hedge-funds have lost 18.50 percent through October.

Permal Group, the fund of hedge-funds unit at Legg Mason Inc. is among those to have seen heavy redemptions, people familiar with its flows said.

Among individual fund strategies, investors pulled out the most money from funds specializing in equity hedge, event driven, relative value and macro strategies.

Macro funds saw investors take out $11 billion even though the average fund rose 4 percent in the first 10 months of the year, HFR said. (Reporting by Svea Herbst-Bayliss, editing by Leslie Gevirtz)

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