Hedge Funds Cut Redemptions
Kurt Brouwer July 9th, 2009
Hedge funds have perked up a bit in terms of performance this year, but many are still suffering from the aftermath of last year’s financial panic. A number of large and small hedge funds are limiting, restricting or delaying investor requests for a redemption. That, of course, just makes investors more concerned about a return of their capital as this MarketWatch piece points out [emphasis added]:
Cerberus Restructuring Offers Investors Few Quick Exits (MarketWatch, July 9, 2009, Alistair Barr)
Cerberus Capital Management LP unveiled a restructuring of its main hedge fund that offers few ways for redeeming investors to get their money back quickly, according to two people familiar with the situation.
The plan, described in a Friday letter from the firm, means investors in Cerberus Partners LP will probably get about 5% of their money back by the end of 2009 at most, the people said on condition of anonymity.
Cerberus is offering investors in the hedge fund two main choices. One option involves shifting their stakes into a special-purpose vehicle which will be liquidated over two to four years, the people explained.
Or investors can stay in the current fund. As Cerberus sells assets and returns cash, these investors can either put the money into a new hedge fund that will be run by the firm, or they can reinvest it in the current fund, the people added. Investors have to vote on the plan, they noted.
…Cerberus, founded in 1992 by former Drexel Burnham Lambert banker Stephen Feinberg, is one of the largest private-equity firms in the world. It has also run a successful hedge fund business.
Cerberus International Ltd., the offshore version of the Cerberus Partners hedge fund, has generated annual returns of more than 11% since it started in 1993, according to industry performance data compiled by HSBC’s private bank.
Last year, the Cerberus hedge funds were hit hard by the financial crisis, partly because of a foray into mortgage securities in the first half of 2008, according to a former investor in the funds. Indeed, Feinberg said in a January 2008 letter to investors that the meltdown in mortgage markets was “overdone.”
…Cerberus Partners lost more than 20% from May 2008 through February 2009, its largest drawdown ever, according to HSBC data. The fund was up 1.12% during the first five months of 2009.
Cerberus limited withdrawals from the hedge fund in December after getting redemption requests totaling 16.5% of its net asset value. The firm planned to let investors withdraw 20% of what they requested, CNBC reported at the time.
Earlier this year, Cerberus suspended all withdrawals from the hedge fund. Since then, redemption requests have surged. A June 30 audit that was sent to investors showed withdrawal requests representing 50% to 60% of assets, according to one investor who didn’t want to be identified.
Many hedge funds suspended or limited redemptions in the wake of last year’s crushing financial crisis. By late November, at least 75 hedge fund firms, including GLG Partners , Deephaven Capital Management, RAB Capital and New Star Asset Management, had limited withdrawals in some way…
Via Shane Holt
- Hedge Funds , Investing , Money , Mutual Funds , Personal Finance
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