The hedge fund industry is thought to have suffered its first net quarterly outflow in years as investors demanded billions of dollars back from the managers in which they had invested.

One of the largest fund administrators said its hedge fund clients had suffered net outflows equal to more than 1% of their assets under management as redemptions exceeded subscriptions. Most of this took place last month, according to a managing director at the fund administrator.

The overall hedge fund industry reached about $2 trillion (€1.27bn) of assets under management at the end of last year after record inflows.

Quarterly inflows declined in the second half of 2007, with $30bn raised in the last three months of the year.

Chris Mansi, a hedge funds specialist at investment consultant Watson Wyatt, said: “I am told that capacity is the best it has been for years, implying that there have been redemptions and managers see great investment opportunities.”

Hedge funds overall recorded losses in the first quarter, particularly in January and March.

They lost 2.78% of their value in the quarter after dropping 2.46% last month, according to the investable global hedge fund index published by US data provider Hedge Fund Research.

Funds of hedge funds are down by a similar amount, Mansi said.

Clients would keep faith with them for a little longer, he said, but warned: “If we have another few months like March, clients will wonder where the supposed diversification has gone and will pull money from funds of hedge funds.”

Hans Hufschmid, chief executive of UK fund administrator GlobeOp, said his hedge fund clients had seen net inflows in the first quarter.