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Huge cash outflows hit hedge funds

The Australian – After suffering one of the worst years on record, Australia’s $62 billion hedge fund industry is bracing for even tougher times in 2009 as a confluence of factors works against them, including poor performance, more regulation, further short-selling bans, and a flood of redemption requests in late 2008 that are due to be repaid right about now.

The result is that an unprecedented level of cash is being pulled out of hedge funds and funds-of-hedge-funds by investors this quarter, just as they face millions of dollars of losses from the ban on short selling.

It is no surprise, then, that a lot of lobbying is going on behind the scenes to ensure that corporate watchdog ASIC lifts the ban on short selling financial stocks on January 27.

But speculation is running hot that the ban will be rolled over and some believe it could remain until the credit crisis subsides — a move hedge funds can ill afford.

In Britain, the ban is due to be lifted on January 17, but Andrew Baker, deputy chief executive of the Alternative Investment Management Association, recently said the ban could last for the entire length of the financial crisis.

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