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* Total FCA registrations fall to 860, from 890
* Investors pull $67 billion in first three quarters
* CQS, Man Group and Brevan Howard see headcount falls
By Maiya Keidan
LONDON, Dec 20(Reuters) - The number of senior people registered as working at the 15 largest discretionary hedge funds in Britain fell by 3.5 percent in 2016, one of the toughest for the industry in recent years.
Overall, hedge funds employ about 10,000 people in Britain, including junior and senior staff, according to industry body the Alternative Investment Management Association.
But the number of people registered with the Financial Conduct Authority as portfolio managers or other senior roles is much smaller and fell from 890 to 860 at the 15 largest funds, a detailed analysis of the registration figures by Reuters showed.
These 15 funds together account for roughly $247 billion of a $478 billion industry in Britain and $3.24 trillion globally, according to industry tracker Preqin. Such discretionary funds operate using the ideas of traders, rather than being directed by the algorithmic models that drive other funds.
Investors have shifted money away from hedge funds, pulling $67 billion out in the first nine months of 2016. This was mostly from the big firms with more than $1 billion under management compared to just 38 percent from funds with less than $100 million, according to Preqin.
Some of the largest falls in staff registrations at London hedge funds came at CQS, Man Group and Brevan Howard, whose combined total dropped by almost 10 percent.
Total FCA registrations of senior staff at CQS fell to 68, from 85, between Jan. 1 and Dec.1, with headcount at the firm falling by 18.5 percent globally over the past 18 months, a person familiar with the matter told Reuters.
Falls in registrations are usually explained by cuts or departures, with some due to staff stepping into roles at the same firm that do not require licenses with the FCA.
Hedge funds racked up losses of 2.6 percent in January and 0.03 percent in February but returns to end-November recovered slightly to 4.57 percent, showed Hedge Fund Research data.
"Many have seen returns they never anticipated before and their clients have been dissatisfied," Martin Kallstrom, head of alternative investments at First Swedish National Pension Fund (API), which invests $1.7 billion in the industry, said.
"If you're starting to make material changes to your organisation, in some cases it can be good but if you have bad performance, you need to ask yourself why," he said.
Fred Ingham, head of international hedge funds at Neuberger Berman, which invests $5 billion in external hedge funds, said computers were increasingly taking over from people.
"A lot of flows and interest has gone into quantitative strategies this year, so instead of ten portfolio managers, maybe you have fewer portfolio managers and more computers," Ingham said.
Aside from CQS, which after a mixed performance last year is up in all its main funds, total registrations at Man Group fell by 5.6 percent, or 11 people, while net registrations dropped by 8 percent at Brevan Howard, to 71, from 77.
However, three out of the 15 added to their FCA registrations, including Toscafund Asset Management, AKO Capital and Capula Investment Group.
All 15 firms contacted by Reuters declined to comment or did not respond to requests for comment. (Additional reporting by Carolyn Cohn and Simon Jessop, Editing by Alexander Smith)