Hedge for the Hills!

Investors bailed out of hedge funds in July at a pace not seen since the telecom/tech bubble burst in 2000, according to research firm TrimTabs BarclayHedge Fund.

And the pace probably accelerated last month.

Investors withdrew $55 billion from funds that invest in hedge funds in July. At the same time, $23 billion in new money was invested, leaving a net decrease of $32 billion.

TrimTabs, based in Santa Rosa, California, estimates that the redemption rate in July was equal to about 5 percent of their estimated assets. It added that the wave of cashing out "likely sparked the dislocation in the equity markets in the summer."

In a statement accompanying the report, Charles Biderman, TrimTabs' chief executive, said, "de-leveraging 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."

He added that the worst is probably over "assuming market volatility does not spike again this month."

But TrimTabs noted that most hedge funds require investors to give 30- to 60-day notice before pulling their money. That suggests the spike in withdrawls seen in July began in May and June.

More bad news this month could extend the exodus into October and November—and beyond.

by Mark Stein