By Nell Mackenzie

LONDON (Reuters) – Investors yanked a net $7.8 billion out of hedge funds in the second quarter, industry data published on Wednesday showed, as volatile markets sent many looking for safer places to keep their cash.

Large investors like pension funds, asset managers and family offices pulled more money out of hedge funds than they added, ending an 18-month trend of them investing more, according to Citco, a firm that provides administrative services to the sector.

Global hedge funds that bet on equity markets suffered the biggest withdrawals, losing $6.4 billion of the net outflows, Citco’s report showed. U.S.-based hedge funds were big losers, followed by those in Asia and in Europe.

Financial markets have tumbled in 2022 as investors were rattled by central bank monetary tightening to fight soaring inflation and fears of rapidly slowing economies. Volatility has soared and stocks tanked, handing many hedge funds large losses and forcing investors to sell out of riskier assets.

Mark Dowding, the chief investment officer at BlueBay Asset Management which also invests in hedge funds on behalf of clients, said that since 2021 he had seen money shift towards private equity and private debt. 

“Yet with the economic cycle turning, it won’t be surprising that those investors may come to regret shifting money in that direction in quarters to come,” he said. 

Sharp falls in traditional fixed income and equity indices would draw investors back to hedge funds, he told Reuters. 

“In this environment, hedge funds have had more of an opportunity to shine,” he added.   

(Reporting by Nell Mackenzie; Editing by Tommy Reggiori Wilkes and Josie Kao)