New York (HedgeCo.Net) – Following in the footsteps of other large hedge funds trying to weather the credit crunch, Blue Mountain Capital Management has suspended withdraws on its $3.1 billion fund.
The Blue Mountain Credit Alternatives Fund lost a little over 2 percent in October, while posting admirable returns the rest of the year. The firm decided to halt redemptions hoping they won’t have to sell assets in the current falling credit markets.
“We are not comfortable with this state of affairs,” Feldstein wrote in a letter to investors obtained by Bloomberg News. “If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors.”
The move comes as a shock to some, since the Credit Alternatives Fund has posted an average return of over 45 percent since its inception in 2003. The firm’s other funds aren’t faring too bad either, with its $1.1 billion equity alternatives fund losing only 0.9 percent and its $400 million BlueCorr Fund boasting returns of 21.3 percent, according to the letter. Hedge funds as a whole have had their worst year ever, losing 20 percent according to the Chicago-based HFRX Global Index.
Investors were given until November 10 to decide whether they wanted to redeem their current investment or exchange it for any one or more of three share classes. If they choose to stay, the lock up provisions of the fund will be waived.
For an industry that was once thought to manage close to $3 trillion in the beginning of 2008, assets are falling off sharply according to an estimate by Morgan Stanley, who says that number might drop to $1.3 trillion.
Fears of liquidity crunches have forced investors to rush to redeem their cash, causing several notable funds to freeze up capital this year. Last week, Deephaven Capital Management froze their $1.6 billion fund after investors rushed to withdraw 30 percent of their capital. Meanwhile, RAB took a more drastic route, opting for a three year lock-up in their Special Situations Fund after losing half of its value this year.
“This level of redemptions in the current market environment forces the question of whether such redemptions can be processed in the ordinary course without disadvantaging both continuing and later redeeming investors,” explained Deephaven CEO Colin Smith in his letter to investors.
It is unclear how long Blue Mountain Capital plans on restricting access to redemptions. The company manages an estimated $5.5 billion from locations in New York and London.
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