April 14, 2009 / 9:06 PM / in 9 years

Hedge fund redemptions slow in March as returns rise

BOSTON, April 14 (Reuters) - Hedge fund redemptions slowed considerably in March when the stock market bottomed and performance at these loosely regulated portfolios improved, according to industry data released on Tuesday.

According to industry tracker HedgeFund.net, investors pulled $17.60 billion out of hedge funds last month, far less than the $44.76 billion they removed in February and the $146.00 billion they took out in January.

In March, the average hedge fund returned 1.8 percent while the Standard & Poor’s 500 Index surged 10 percent.

For the quarter the average hedge fund is nearly flat while the broader S&P 500 index is down about 11 percent.

HedgeFund.net estimates that hedge fund industry assets now total $1.724 trillion, 41 percent less than at their peak in June 2008.

For a time, hedge fund investments were so popular with pension funds, endowments and wealthy individuals that assets doubled to roughly $2 trillion in about three years.

Since the fourth quarter when the financial crisis deepened and many hedge funds suffered their worst-ever losses, however, investors have been clamoring to exit hedge funds.

In the first quarter alone, industry assets shrank by roughly 11 percent as investors raced to get out in the wake of last year’s average 19 percent loss.

Early in the year, many managers braced to see more requests from investors to leave in the months ahead.

But the pace of redemptions is slowing now, not only because hedge funds are back in the black but also because many investors realize that they cannot get their money out quite yet even if they asked to get it back.

Many hedge fund managers still use mechanisms known as gates designed to slow the rate of redemptions which means that the money is leaving funds more slowly, several investors said.

At the same time many hedge fund managers have told their investors that they get securities instead of cash if they wanted to leave now.

This too is worrying some investors who said they would rather stay in the hedge fund than accept the securities that some managers were offering them instead of cash.

Since hedge funds limit the times where investors can get out, often restricting exits to once a quarter, industry analysts said there may still be lots of pent-up demand to get out that is still working its way through the system. (Reporting by Svea Herbst-Bayliss, editing by Matthew Lewis)

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