Oct. 30 (Bloomberg) -- Hedge funds might cut spending on technology as much as 39 percent next year because of declining revenue, a study found.

Hedge funds may reduce technology budgets to as little as $882 million next year from $1.45 billion this year, according to a study released yesterday by research firm The Tabb Group LLC, based in Westborough, Massachusetts.

``Companies are already reacting to the market's unfavorable circumstances by adjusting strategies and trimming operations,'' according to the study, which was based on interviews this year of 61 U.S. hedge funds managing a combined $227 billion.

Technology spending among hedge funds is typically focused on computers and software for automated trading, including order taking and execution, the study said.

Hedge funds, private and largely unregulated pools of capital, have had losses averaging 17 percent this year through September, according to Chicago-based Hedge Fund Research Inc. The losses have come as defaults on subprime mortgages in the U.S. caused investment portfolios to collapse, leading to a global freeze in lending.

Most hedge funds are shrinking, with client redemptions and investment losses expected to cut industry assets by 32 percent to $1.3 trillion by year-end, according to an Oct. 24 report by Morgan Stanley.

To contact the reporter on this story: Lauren Berry in New York at lberry4@bloomberg.net

Last Updated: October 30, 2008 15:36 EDT