Market tumult may drive big redemptions soon: poll

BOSTON (BestGrowthStock) – May’s market tumult likely hurt hedge fund managers again in June and may inflict more pain in July as investors reacted to poor returns by pulling some of their money out, industry consultants forecast.

“We expect to see large outflows in June and July,” executives at TrimTabs and BarclayHedge said in their latest report which was released on Monday.

Many hedge funds let their clients take money out only a few times a year and so reaction to the market’s sharp drop two months ago could be slow in coming, the consultants said.

“History shows that redemptions tend to hit a month after sell-offs get ugly,” they wrote.

When stock markets stumbled, Europe’s debt crisis worsened and the U.S. blue-chip Dow Jones industrial average (.DJI: ) plunged nearly 700 points in a still largely unexplained flash crash in early May, hedge funds lost 3.1 percent that month.

While this was the biggest monthly drop since November 2008, investors had little chance to react immediately.

Indeed, flows data shows that hedge funds were still taking money in to the tune of $4 billion in May, which more than offset the $3.4 billion investors pulled out in April.

Hedge funds around the world now manage $1.6 trillion, TrimTabs data show.

But those positive flows surely stopped in June and July, industry analysts forecast, citing past patterns as a guide.

When the financial crisis picked up steam in late 2008, investors yanked $31 billion in October one month after hedge funds lost 8.7 percent in September.

And after returns dropped 8.1 percent in October 2008, clients removed $52 billion in November, TrimTabs data showed.

Hedge funds are not required to report their returns or assets, so all numbers that are voluntarily released to tracking firms are closely followed for possible trends in the industry.

Already in May investors were becoming choosier in terms of which types of hedge funds they funded, the data showed.

Managers in Japan pulled in 4.8 percent of the assets with U.S. managers adding 1 percent of the assets. Managers in continental Europe saw 4.8 percent of the assets pulled out.

(Reporting by Svea Herbst-Bayliss, editing by Matthew Lewis)

Market tumult may drive big redemptions soon: poll