Vol of vols

5 September 2007 By Richard Beales Follow @richardbeales1

The role of hedge funds selling as they deleveraged their portfolios has rightly been seen as central to much of the recent market turmoil. But as well as intermediating the bulk of hedge fund investments, fundsoffunds also borrow. They could have stoked volatility, too.

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According to new research from TrimTabs Investment Research and BarclayHedge, hedge funds posted an estimated outflow of $32bn in July, the largest outflow since 2000.

This involved what the researchers called a staggering $55bn in outflows via fundsoffunds, while direct investors in hedge funds gave the funds $23bn of new money.

August hedge fund outflows could have been even greater, TrimTabs and BarclayHedge said, although they expected redemptions to dwindle in succeeding months, barring another subprimetype negative event.

Charles Biderman, chief executive of TrimTabs, said: We believe deleveraging and risk reduction by funds of hedge funds was a major cause of the turbulence in the credit markets and the equity markets in July and August.

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