Updated with correction
Worldwide hedge fund assets under management likely will shrink by 35% to 45% from June 30 to Jan. 1, predicted London-based Morgan Stanley Research.
Assets likely will decline to between $1.09 trillion and $1.29 trillion by the end of 2008.
The good news from Morgan Stanley researchers is that they expect to see hedge fund assets rise to $1.62 trillion by the end of 2009. Assets were $1.87 trillion at the end of 2007.
In their Nov. 28 research note, the Morgan Stanley team said they think European and Asian hedge funds will have higher redemptions with estimated outflows of 25% to 30%. European fund redemptions will be greater because of more liberal liquidity terms and because the funds client bases are more high-net-worth investors and hedge fund of funds, according to the research report. However, U.S. hedge funds with similarly liberal redemption terms also will contribute to an overall estimated loss through redemptions of 15% to 20%.
Interestingly, the reports authors said we also see increasing institutional redemptions, particularly from the `Swenson tail of endowments (that) have overcommitted to private equity and need to raise cash.