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Europe’s rich rush for hedge fund exits

By Deborah Brewster in New York

Published: April 19 2009 23:31 | Last updated: April 19 2009 23:31

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Rich Europeans, who were the first to invest in hedge funds and once comprised the majority of investors, have been the first to exit in the downturn, according to a study out Monday.

High net worth individuals last year accounted for 80 per cent – or more than $500bn – of hedge fund redemptions, though they only held two-thirds of the assets. The outflows were disproportionately European, the study by the Bank of New York Mellon and Casey Quirk, a research firm, said.

“The result is not only a smaller industry, but a capital base that is more institutional and more North American,” the study said.

The shift leaves US pension funds as the hedge fund stalwarts. They are likely to account for the single largest source of new capital in the next four years. Pension funds put net new money into hedge funds last year and plan to put more in again this year, according to the study based on a survey of 158 investors and industry members.

Individual investors’ share of hedge fund assets has dropped from 67 per cent in 2005 to 57 per cent at the end of last year.

“Future flows from European high net worth investors are highly sensitive to future returns and represent the greatest source of volatility,” the study said. “Asian high net worth investors also account for a very high redemption rate, in excess of 30 per cent, though the absolute outflow in dollars is smaller than those recorded in the larger European and North American high net worth markets. The widespread use of structured notes with automatic redemption triggers in the Asian and European markets drove these outflows.”

Institutional investors led by Calpers and the Utah state pension fund have begun pushing for fee reductions and trying to renegotiate terms as they review commitments to the asset class.

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