Wealthy investors will make slow return to hedge funds, says expert

20 January 2009

Investor flight from hedge funds has probably peaked but following the worst year in the industry's history, it will take a long time before wealthy investors "regain their appetite" for the sector, an expert has predicted.

Don Heberle of Bank of New York Mellon's wealth management division told Reuters that the past 12 months has shaken the confidence of clients who had long put their faith in the potential of hedge funds to generate returns in any market.

BarclayHedge data cited by the news agency shows the average investment pool lost 19 per cent of its value last year, with investors pulling a record $148.4 billion out of the sector in December alone.

Following these losses, many hedge funds tried to block the exits by suspending client redemptions, "adding insult to injury" for those who had lost money and making investors more wary about returning.

"The money will come back in over time, but I don't expect it will be a massive wave here at the front of end of this year," Mr Heberle said.

Overall, the global hedge fund industry is believed to have lost around $350 billion in 2008, according to figures from EurekaHedge.

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