Investors punish poorly performing hedge funds by pulling billions

January 18, 2019

By Svea Herbst-Bayliss

BOSTON (Reuters) – Hedge funds suffered their worst quarterly outflows in two years when investors pulled $23 billion from the industry during the last three months of 2018, new data released on Friday show.

In total, investors asked for $34 billion back last year, but the bulk of the money was pulled out in the fourth quarter when investors lost patience with poor returns and a number of firms decided to shut down after lackluster performance.

Fourth quarter redemptions marked the largest quarterly outflows since the third quarter of 2016 when investors pulled $28.2 billion, Hedge Fund Research data showed.

The outflows shrunk the size of the hedge fund industry to $3.1 trillion from a record $3.24 trillion at the end of the third quarter.

A number of prominent firms shut last year, including Boston-based Highfields Capital and Three Bays Capital, which was founded by a former Highfields executive. In New York, Tourbillon Capital announced plans to shut down, and San Francisco-based Criterion Capital Management said it was closing.

Investors pulled the most money out of stock picking funds, asking for $16.8 billion back in the last three months. So-called equity hedge funds also posted the worst performance, losing roughly 7 percent last year.

David Einhorn’s Greenlight Capital, for example, lost 34 percent, marking his worst-ever year, and Larry Robbins’ Glenview Capital Management lost 16.2 percent.

(Reporting by Svea Herbst-Bayliss; editing by Jonathan Oatis)