Lambs to the slaughter

Hedge funds have spent most of the past nine months cowering behind the sofa as a horror show of mass redemptions dances across their TV screens.

Every so often they peer around the corner in the hope it is safe to come out from hiding and start the serious business of making money once again.

Fresh figures today from HFR, those diligent statisticians of all things hedgie, offer some insight into whether the closing credits of the horror flick are rolling, to be replaced by film of lambs gambolling in the spring sunshine. But only a little.

It seems that net redemptions from hedge funds slowed to a paltry $104bn in the first quarter of 2009, from a far chunkier $152bn in the final three months of 2008. And with the average fund posting a gargantuan 0.53 per cent positive return in the quarter, surely the rush for the exits will abate further from here, prompting a sigh of relief from an industry which, at $1,330bn, is down $600bn from its peak.

But the horror show is becoming more gruesome still for funds of hedge funds, where redemptions spiked to a record $85bn, HFR’s number-crunchers tell us, from $50bn last time.

Some of this divergence may simply be due to a time-lag; funds of funds need to extract their cash from underlying vehicles (not always a straightforward process) before being able to pass what remains back to the end investor.

But more ominously, the data could be evidence of the extent to which, post Madoff, investors have lost faith in the fund of fund model.

From the FoF perspective, when the current horror flick ends, the next show may be more Silence of the Lambs than gambolling lambs.

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.

Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.