Hedge funds to see further falls

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The Independent Online

Hedge funds, whose assets under management lost about one-third of their value in 2008, falling to $1.8 trillion (£1.3 trillion), could lose another 20 per cent or more this year as anxious investors continue to redeem their cash, and the funds' limits on such redemptions expire, according to a report yesterday.

Hedge funds have suffered as the economic downturn has eaten into investments and clients have withdrawn money. Many also borrow to boost returns, and with banks and investors calling in their cash, some hedge funds have had to close trades at bad times to repay them. Some hedge funds suspended redemptions by imposing so-called "gates" on certain funds, locking in investors for several months.

"With a significant number of funds having imposed 'gate' provisions or suspended redemptions, it is expected that assets could fall a further 20 per cent or more from end-2008 levels over the next few months before the decline in assets is likely to reach a bottom," said the report by the consultancy Hedge Fund Intelligence.

The number of funds with assets of $1bn or more fell from 395 in mid-2008 to only 311 at the end of the year.