Report: Redemptions could bleed hedge funds

Hedge funds are about to see billions wiped out as investors take their money and run, the Financial Times reported. Fund-linked derivatives, which link to hedge funds and other actively managed underlying assets, will complete their quarterly reviews by the end of next week, and many will see automatic redemptions, bankers told FT. Bankers in the field told FT that an estimated $200 billion has been invested in structured products, and that several billion dollars would be redeemed this month — with the money being pulled by the end of the year. Investors poured money into the products, but will probably jump out of the pool in light of this summer’s poor performance of hedge funds. Funds that invest in illiquid assets could finally feel the ripple effect that’s hit the rest of the market, raising pressure to sell. Most of the products will only partially redeem their investors as part of their automatic rebalancing, FT said. These products were exposed to hedge funds that only saw a small percentage drop during the summer. However, at least two structured notes have been unwound due to their heavy exposure to floundering Goldman Sachs quantitative funds, FT noted.