Photographer: Michael Nagle/Bloomberg

Hedge Fund Investors Withdrew $28.2 Billion in Third Quarter

  • Redemptions are most since aftermath of financial crisis
  • Industry assets climb to a record $2.97 trillion on profits

Hedge fund investors pulled $28.2 billion from the industry in the third quarter, the most since the aftermath of the global financial crisis, according to Hedge Fund Research Inc.

The net outflows, which amount to 0.9 percent of the industry, are the largest since the second quarter of 2009, the firm said Thursday. Investors redeemed $51.5 billion in the first nine months of the year, even as industry assets rose to a record $2.97 trillion, it said.

Hedge funds have been under pressure from investors critical of high fees and uninspired performance. The Kentucky Retirement Systems’ investment committee voted Oct. 14 to exit hedge funds over a three-year period. Marc Levine, chairman of the Illinois State Board of Investment, said yesterday that the plan had moved two-thirds of its assets to passive management to reduce fees, causing it to withdraw about $1 billion from hedge funds.

The third quarter was the fourth consecutive quarter of redemptions for the industry, the longest since 2008 and 2009, HFR said. Redemptions were concentrated in the biggest funds, with almost $22 billion withdrawn from firms with more than $5 billion in assets. Firms managing between $1 billion and $5 billion saw net outflows of $7.4 billion.

Investors pulled the most money from hedge funds that make wagers on corporate events, primarily those focusing on companies in special situations, like distress or bankruptcy. They added money to quantitative-trend following strategies.

The average hedge fund across strategies gained 4.2 percent this year through September. The S&P 500 Total Return Index, which includes reinvested dividends, rose 7.8 percent during the same period.

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