Goldman CFO sees end to hedge fund redemption wave

By Joseph A. Giannone

NEW YORK (Reuters) - Hedge fund assets may be on the rebound after a year of massive redemptions, Goldman Sachs Group Inc Chief Financial Officer David Viniar told analysts on Tuesday, although the prime brokerage business will remain under pressure.

"Assuming (hedge fund) performance stays OK -- which it has been through the first half of this year -- it feels like we are pretty much through the redemption cycle, and it actually looks like you are going to start to see some money flowing into hedge funds," he said during a conference call.

The hedge fund business suffered record withdrawals at the end of 2008 as markets imploded, sending the industry's assets under management down by about 40 percent.

Yet as markets rebounded this year, so did first half performance and the outlook for hedge funds.

One of the world's largest prime brokers, Goldman provides financing, trading and other services to hedge funds. The securities services business, posted a 38 percent drop in second quarter revenue to $615 million driven mainly by shrinking prime brokerage customer balances.

"Given the industrywide reduction in hedge fund assets and leverage, the results within our securities services business were lower than in prior years," said Viniar, who told analysts the environment for this business remains "challenging."

Investors pulled $103 billion out of hedge funds in the first three months of 2009, further shrinking the size of the once red-hot asset class to $1.3 trillion. First quarter redemptions slowed from the record $152 billion removed during the fourth quarter.

The hedge fund industry now manages $600 billion less than it did at its peak during the middle of 2008.