Millions still pouring into hedge funds but emerging markets see big withdrawals, reports show

News - Funds

Written by Ray Clancy

Friday, 20 August 2010 09:30

Emerging market hedge funds saw millions of pounds of withdrawals in the second quarter of 2010 but overall they are still attracting massive amounts of investment.

The emerging markets sector suffered $1.5 billion (£958 million) in net withdrawals in the second three months of the year while overall the industry received $9.6 billion, according to figures from Hedge Fund Research, which provides indices of hedge fund performance.

It is the seventh quarter in the last eight that emerging market hedge funds saw withdrawals. This means investors have pulled over $2 billion from EM hedge funds in 2010.

Along with performance related losses, total capital invested in EM hedge funds fell by $3.2 billion in April to June to just under $95 billion, HFR said in a report.

‘Changes in global growth expectations, prospective currency volatility and commodity-specific market influences have resulted in a near-term decrease in investor risk tolerance for emerging market hedge fund exposure,’ said HFR president Kenneth Heinz.

Redemptions were focused on Russia and emerging Asia while hedge funds focusing on Latin America and the Middle east continued to receive new capital.

Emerging equity hedge funds experienced $1.8 billion in redemptions while EM macro funds took in $320 million

In contrast, the overall hedge fund industry received net capital inflows of $23 billion in the first six months of 2010, the group said.

Hedge funds posted small gains in July but lagged the broader market because many managers played it safe after market tumult in May and June took a bite out of their portfolios, according to data from the Hennessee Group.

Reversing two months of losses, the average hedge fund gained 1.9% in July, after dipping 1.35% in June and falling 3.01% in May, the consultants said in a report.

As expected, hedge funds that exclusively bet on stock market declines fared the worst last month with so-called short sellers dropping 6.30%.

Some of the best known and most closely watched hedge fund firms turned in strong performances in July, after a few tough weeks when fears about the US economy and Europe’s expanding debt crisis sent markets tumbling.