September was a world-class bad month in Hedgistan, and it looks as if October has been no kinder.
With continued losses at many funds and investors increasingly leery of risk, the thinning of this herd will continue.
Hedge funds capped their worst two months in at least eight years in October, as global declines in stocks and commodity prices curbed returns and investor withdrawals cut assets, according to Eurekahedge Pte.
The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds that invest globally, dropped 4.5 percent last month after falling 5 percent in September, the Singapore-based data provider said. October’s drop, based on 71 percent of constituent funds reporting as of today, pushed the index down 12 percent on the year, the worst since Eurekahedge began publishing data in 2000.
Investors withdrew a net total of $62.7 billion from hedge funds last month, according to Eurekahedge, shrinking the industry by $110 billion to $1.65 trillion of assets as markets tumbled amid a global recession. Assets may fall to about $1 trillion by the middle of next year, Citigroup Inc. said in a report this week.
“The industry will probably face more redemptions for a while,” said Akihiro Nishi, executive director at Tokyo-based Mitsubishi Asset Brains Co.’s investment advisory division. “The decline is a reflection that a majority of hedge funds seem to be taking risks betting more on beta,” a gauge of a fund’s risk that measures the volatility of its past returns in relation to the returns of the benchmark…
About 350 hedge funds shut down in the first half of this year, up 16 percent from 303 a year earlier, according to Hedge Fund Research Inc. An estimated 700 may go out of business by the end of the year, according to the Chicago-based firm.