By Alistair Barr

SAN FRANCISCO (Dow Jones) -- The cycle of redemptions that crushed hedge funds last year isn't over because global financial conditions remain unstable and institutional investors still need access to cash, Och-Ziff Capital Management Group founder Dan Och said Thursday.

Och-Ziff isn't immune to withdrawals from the industry, partly because so many other hedge funds have frozen redemptions, forcing investors to pull money from the remaining firms that are still providing regular liquidity, Och explained.

"On the one hand, there is a lot more stability than the fourth quarter when there was a lot of panic in all financial markets," Och said during a conference call with analysts after the firm reported fourth-quarter results.

"On the other hand, anecdotal evidence -- I'm speaking with other fund managers, listening to commentators -- it appears that due to the overall instability in the environment and general liquidity needs, it does appear that the redemption cycle is not yet over," he added.

"We're not immune to the impact of the ongoing industry-wide redemption cycle regardless of our performance," Och said.

Och-Ziff (OZM) had a tough 2008 as the hedge fund industry was battered by record losses and massive investor redemptions. The firm's main OZ Master Fund lost more than 15% and overall assets under management dropped by $11.1 billion last year, while Och-Ziff shares slumped roughly 80%.

The firm's main OZ Master Fund got off to a better start in 2009, returning an estimated 3.12% in January. The performance of the rest of the industry also improved last month.

Despite that, a net $124.7 billion flowed out of the hedge funds last month, mainly owing to redemptions and fund liquidations, HedgeFund.net estimated on Thursday. Industry assets fell 5.8% to $1.748 trillion in January.

Still, net outflows were lower than in December and November, when $133 billion and $200 billion drained out of the industry, respectively, according to HedgeFund.net estimates.

Late last year, many hedge funds froze redemptions and put up so-called gates, which limit the amount of money investors can withdraw. That sparked tension between managers and investors and pushed some investors to pull money from firms with no freezes and gates that performed relatively well last year.

"Negative surprises in performance, loss of liquidity, I think it's fair to say in general that investors were not pleased with freezing and suspending of redemptions, gates," Och said on Thursday.

Future redemptions from Och-Ziff hedge funds may depend on how many investors are still locked up in other funds and need to tap Och-Ziff for cash, he explained. However, over the longer-term, the firm should benefit from honoring investors' liquidity needs, he added.