A few weeks ago, we reported that even when the market was hitting all time highs ahead of the historic October bloodbath, hedge fund investors were growing increasingly nervous, and rushed to redeem $15 billion from the space in September, the largest single monthly outflow in years, bringing year-to-date net flows to flat after being stubbornly in the green for much of the year despite what has been another deplorable year for hedge funds.
This was not the first time either: over the last three years, investors had removed over $100 billion from the industry, but performance gains had offset these losses... at least until last month.
And then October came which was not only a "bloodbath across almost every strategy", but was the worst month for hedge funds in 7 years.
Which is why just one week ago, we warned that what may be the most underappreciated delayed risk to the market is a surge in redemption requests as LPs and investors got their monthly performance reports, showing the worst month in years, and in kneejerk response faxing in their request to have most or all of their money pulled out now before the rout accelerated.
Today, Bloomberg picks up on this risk, with reporter Saijel Kishan writing that following the second worst month of the decade for the hedge fund industry, many are bracing for an industry D-Day: Nov. 15.
That, as Kishan explains, is the deadline for investors to put managers on notice to get some - or all - of their money at year end.
Investors can cash out of most hedge funds quarterly after giving 45 days notice. Withdrawal schedules can vary, as do notice periods. Firms can also levy penalties on clients who want to bail outside of agreed schedules, while investors can cancel redemption plans if they change their minds.
Only this time few will be changing their minds, and the total redemption total will be a bloodbath, because if history is any guide, "the rush for the exits will be swift and accelerate."
Having previously noted that September outflows - at a time of record stock prices - jumped the most in years, the October total will be a sight to behold. The industry lost 3% in October and is down 1.7% this year, according to HFR. It largely reflected the worst month for US stocks since 2011.