Hedge Funds Facing Run on Their Money

November 2, 2016 James Heinsman Hedge Fund News

Yes, hedge funds seem to be closing faster than we can keep up, but is it just a perception, or is something really going on?

It turns out we are not imagining things at all. Far from it. A recent report from eVestment confirms our fears; investors withdrew a shocking $60 billion from hedge funds so far this year, with a crazy $10 billion in withdrawals just in September. Data like this suggest that hedge funds are suffering their worst investor push-back since the financial nightmare of 2008. The small recovery witnessed over the summer of 2016 did not put much of a dent on investor fears, and the withdrawal trend continues unabated.

The third quarter of 2016 was a tough one for hedge funds, which saw their industry lose $29.2 billion in investment money. It is the fourth quarter in a row in which the money flowed out of alternative funds, plus it was the quarter with the largest amount of total withdrawals since the beginning of 2009. The figures support the fears of analysts that hedge funds are going through a huge investor backlash in reaction to poor returns on their money combined with high management fees.

Before anyone thinks the sky is falling, it would be useful to remember that combined, hedge funds manage about $3 trillion, making a $60 billion outflow look like a drop in the bucket, if not the sea. (60,000,000,000/3,000,000,000,000=0.02, or 2 percent.) Yet, the trend is disturbing for money managers who much prefer to see money flowing in than flowing out. Investors could be just beginning to wake up to little known facts such as, on average, this year hedge funds returning a disappointing 4.19 percent while the S&P 500 Index has returned 7.8 percent during the same time.

Not all hedge funds are equal when it comes to bad returns. Perry Capital was forced to close one of its major divisions even though the firm has an amazing and long history of good results. Pershing Square, activist investment star Bill Ackman’s fund saw its own assets dwindle by almost half due to scandals and other problems, from $20 billion at the end of 2015 to only $11.4 billion today.

Bill Ackman, Perry Capital, Pershing Square,

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