18/03/2009

Fire-sale’ over as redemptions slow

A Barclays Capital (BarCap) report obtained exclusively by HFMWeek has found cautious optimism returning to the hedge fund industry.

The BarCap’s Asset Management Solutions Group Survey found that 70% of investors were interested in re-deploying cash by the end of the second quarter 2009. Pension funds remain the most confident investor base in the hedge fund industry. Of those surveyed, 88% said they remain opportunistic and would continue to fund allocations.

Certainly redemptions haven’t dried up entirely, they never do, but the withdrawals have slowed and may be closer to $25bn for first quarter of 2009, more in keeping with the long-term industry average. “We are not seeing an increase in new redemptions and we think the market in general seems to be holding up. People are getting more confident that we are near the bottom,” said Charles Gradante founder of Hennessee Group.

Notwithstanding this optimism, redemptions could still hit $150bn in the first half of the year, but these aren’t new requests. BarCap found that 50% of redemptions filed during the Q4 2008 had been granted implying outflows of the remaining 50% ($150bn) in the first half of 2009.

Investment consultants Cambridge Associates claimed between 20%-25% of global hedge fund capital left the industry in the last quarter of 2008, but also confirmed the outlook is suddenly a lot brighter, “Given the early returns for 2009, we’re optimistic about hedge fund returns this year,” said David Shukis, head of hedge funds at Cambridge Associates.

Goldman Sachs latest Hedge Fund Trend Monitor, obtained by HFMWeek, which analyses the activity of hedge funds in the equity market, shows a pick-up in the returns of the 50 stocks most heavily invested in by hedge funds. Dubbed ‘the hedge fund VIP list’, it was down 45% last year but was up 300bps against the S&P 500 as of 17 February, helping hedge funds to stabilise returns.

Further signs of life can be found in the rubble of the lending market. Permal, one of the world’s largest hedge funds, issued an RNS to the Irish Stock Exchange on Tuesday, which not only laid out a plan to reduce redemption notices back to the group’s normal 20 days by January 2010, but also confirmed credit facilities were back in place. It established a multi-lender facility with Societe Generale as administrative agent for up to $800m and a second with Merrill Lynch for up to $300m, the FoHF is also negotiating a third facility.

By the end of the second quarter BarCap estimates industry AUM to trade at $1.2trn. Into the second half of 2009 expectations are high that assets will start returning to the industry; “Our team is working on a lot of RFPs at the moment and redemptions have definitely stabilised,” said one of Europe’s largest FoHF.