HEDGE FUNDS:INVESTORS WITHDREW an unprecedented $43 billion (€31.9 billion) from US hedge funds in September as global bans on the short-selling of financial stocks and continuing volatility across markets led investors to flee alternative funds for safer asset classes.

According to TrimTabs Investment Research, which produced the figure, its estimate is based on preliminary data and the final tally will probably be higher, because funds with heavy redemptions tended to report data later.

So far this year the average hedge fund is down 17 per cent, about half as much as the SP 500 index. As hedge fund values continue to fall and withdrawals look set to rise as year-end approaches, the hedge fund market is likely to shrink considerably.

One top alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months. JPMorgan has estimated hedge fund outflows could top $150 billion in the coming year, leading to asset sales of about $400 billion.

The declining fortune of the global hedge fund market is bad news for Ireland's alternative funds administrators. As of last December, Irish-based administrators serviced more than $1 billion in hedge fund assets but, since then, this figure has likely dropped off and, as fund values decline, fee income also drops off.

One of the larger hedge funds, Citadel Investment Group, has seen its primary fund fall by as much as 30 per cent so far this year, due to losses on convertible bonds, stocks and corporate bonds.

However, while some major hedge fund players face liquidation, others have prospered. US manager John Paulson, who made a killing shorting subprime before turning his attention to UK banks, has generated positive returns for most of his funds, with his Paulson Advantage Plus fund generating returns of more than 19 per cent in the year to August. - (Additional reporting from the Wall Street Journal and the Financial Times)