Hedge-fund investors pulled $74 billion out of the industry last month, according to TrimTabs Investment Research, as the stock market suffered amid bleak economic reports.

The redemptions represent about 5% of assets under management by the hedge funds at the end of 2008, and come despite reports of

improved performance

in the new year. TrimTabs, like other research firms, reports that hedge funds returned 0.3% overall in January, on the heels of

dismal performance

last year.

However, between the redemptions and investment losses, hedge fund assets fell to $964 billion on Jan. 31 from nearly $2 trillion at the mid-point of last year. The redemptions last month were second-highest on record, after a removal of $117 billion the previous month. Money was withdrawn from nearly all categories in January except for funds that invest strictly in equities.

Many funds have responded to panic-stricken investor demands by placing "gates" around funds to prevent hasty withdrawals. Without such gates, funds argue that they are forced to liquidate massive holdings, causing further disruption in the equity markets.

Though hedge funds still performed better than the broad markets amid the financial crisis, the bar is set higher by investors accustomed to "alpha" returns. Those expectations have shaken several large funds, including

Cerberus

,

Harbinger Capital

,

Citadel Investment Group

,

Fortress Investment Group

(FIG)

and

Och-Ziff Capital Management

(OZM)

.

But some firms, like Och-Ziff have stuck to "no-gate" pledges, and earlier this month

Citadel

became the first high-profile firm to say it would begin raising its gates. It cited an easing of the credit crunch, and better liquidity and performance in various markets.