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Cayman Net News – In a landmark decision the Cayman Islands Court of Appeal has settled various questions on the suspension of redemption. The ruling (December 12, 2008) in the Strategic Turnaround Master Partnership (based in New York) versus Culross Global case specifically defined the meaning of redemption in an investment fund context and at what point a member is actually redeemed from an investment fund.
After examining the articles of association, the Court of Appeal found redemption did not take place on the redemption date but was a process which was not completed until the member’s name was removed from the register of members and the member’s shares were available for re-issue.
Given the investment climate and the rash of redemption requests, the court’s decision is important to directors, administrators, auditors, legal advisers and other third parties involved in the determination of the rights and liabilities of investment funds and investors.
Bloomberg – The financial crisis is imposing heavy burdens on the hedge-fund industry, and the strain has become more visible. By the end of last week, about 100 hedge funds imposed restrictions on withdrawals. Many funds have become financial roach motels: Investors can put their money in, but they can’t get it out.
Deregulation has taken a lot of blame for this financial crisis, but an interesting footnote is that the lightly regulated hedge-fund industry has stayed healthy enough to avoid the bailout game.
But are rising redemptions a sign that hedge funds may need a handout, too?
It’s small wonder that some funds have decided to put the brakes on. Morgan Stanley estimates that redemption requests are running at 15 percent to 30 percent of total hedge-fund assets.
New York (HedgeCo.Net) – Chicago-based Citadel Investment Group lost 13 percent in November, according to a report published by the Wall Street Journal. This brings the hedge fund firm’s total losses to 47 percent for the year.
The losses stem in part from the company’s two largest funds, the Kensington and Wellington, which together manage about $10 billion in assets. Investor redemption requests totaling around $1 billion and plummeting values of bonds were the catalysts behind the losses.
This is the first year since 1994 that Citadel will post a loss. It is only their second loss since CEO Kenneth Griffin launched the firm in 1990. All is not grim, however. Bloomberg News reports that three other Citadel funds, who together manage about $3 billion, have climbed about 40 percent this year.
Hedge funds as a whole have posted their worst record to date this year. According to data by Chicago-based Hedge Fund Research, hedge funds have lost an average of 22 percent this year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – Hedge fund investor Thomas H. Lee may downsize or shut the door to two of his funds after posting losses of about 40 percent this year, according to the Wall Street Journal.
The funds, which together manage about $1.5 billion, suffered losses that were multiplied by Lee’s heavy use of leverage, according to the sources who estimated he sustained losses of as much as $3.2 billion.
The funds were actually set up as funds-of funds, meaning Lee distributed investor’s money to approximately 110 other funds. When investors moved to withdraw cash from the hedge fund, it sparked a wave of redemption requests from the original funds, creating a domino effect of losses.
Funds that Lee invested in include SAC Capital Advisors and D.E. Shaw Group, according to the report.
Lee’s private equity firm was launched in 1974 and has grown to be one of the largest in the country. Lee now heads up his hedge fund business, Thomas H. Lee Capital Management LLC and his new private equity firm, Lee Equity Partners. Lee currently manages about $2.7 billion in capital.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months.
D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.
The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren’t forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two.
New York (HedgeCo.Net) – New York City-based Ramius Capital will close four of its hedge funds that manage about $550 million in capital, the Wall Street Journal reports citing people familiar with the matter.
The closing hedge funds are concentrated in convertible bonds, distressed credit and securities of merging companies.
Some of the money in these funds could be transferred to Ramius’ largest, $2.1 billion multi strategy fund. However, as the company deals with a wave of redemption requests, the multi strategy fund could be in danger of losing about $500 million of its value.
“Going forward, these strategies will continue to be important allocations in our multi-strategy fund and will continue to be managed by the same portfolio teams,” Ramius told the Wall Street Journal.
Ramius currently manages about $10 billion in capital. It recently offered its main hedge fund clients lower management fees to keep their loyalty with the firm.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – Hedge Fund firm Tudor Investment Corp. has suspended investor redemptions from its $10 billion BVI Global unit until March 31st, giving the company time to split the fund into two.
BVI Global was hit by a wave of client redemption requests after investors moved to withdraw 14 percent of their capital, according to a recent letter to investors. The hedge fund posted a loss of about 5 percent this year, while hedge funds as a whole lost an average of 22 percent through November 24th according to Hedge Fund Research Inc.
Tudor Investment Corp., run by Paul Tudor Jones, wants to separate the corporate bonds and loans from emerging markets and start a new fund called Legacy, according to a recent letter to investors. The BVI flagship fund will stick with its staple of stocks, bonds, currencies and commodities.
The company is asking clients to approve the split within the next two months. Capital would be placed into both the BVI Global Fund and the Legacy Fund, depending on the division of assets.
Tudor Investment Corp. manages approximately $17 billion. Jones’ Tudor Futures Fund has posted gains of 21 percent this year while the firm’s Tensor Fund Ltd has seen returns of about 34 percent, according to people familiar with the matter.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Daily News and Analysis – With the last of the deadlines for hedge funds investors to file their redemption requests approaching, experts feel most of them may be done with their selling.
The Sensex has lost 1,761 points in the last 7 sessions as foreign investors unloaded equities worth over Rs 2,000 crore.
This is in sharp contrast to the first week of November, when they were net buyers for Rs 790 crore.
The renewed selling is seen as an effort by hedge funds to shore up their cash levels to meet the new wave of redemption requests around the November 15 deadline, analysts said.
Reuters – Anxiety is sweeping the hedge fund industry before a crucial deadline on Saturday, when investors angered by recent heavy losses are expected to demand the return of billions of dollars.
"Managers have a pretty good feeling for what is coming, and there are significant redemption requests out there," said Stewart Massey, founding partner of Massey, Quick & Co., an investment consultant that puts money into hedge funds.
Saturday is the last day for thousands of investors to notify hundreds of hedge funds if they want their money back by year’s end.
Hedge funds that require three months notice from investors who wanted to exit by year’s end had a similar deadline on September 30 — also known in the industry as "D-Day."
New York (HedgeCo.Net) – Clients of Fortress Investment Group LLC have requested to withdraw more than $4.5 billion of their assets over the next few months, according a statement released by the hedge fund yesterday.
The company reported its first annual loss since going public, mostly due to its Drawbridge Global Macro funds losing over 13 percent this year through the end of September. If investors have their way, this would take a 25 percent chunk out of the total assets under Fortress’s management.
Fortress isn’t the only hedge fund dealing with a hit of investor withdraws. The sour economy and recent credit crisis has sent a wave of panic over some investors, prompting them to rush for redemptions. Some hedge funds choose to “freeze” investor withdraws until the market takes a turn for the better, or until they can figure out how to wind down the fund in an orderly manner.
Fortress said it received $2.6 billion in redemption requests for its liquid hedge funds, which include the Drawbridge Global funds and the Fortress Commodities funds. Its hybrid hedge funds, which include the Drawbridge Special Opportunities funds which saw a drop of over 7 percent in the third quarter, and the Fortress Partners funds, will lose $1.9 billion in capital because of the withdraws.
Fortress reported a third-quarter loss of $20 million, equivalent to 4 cents a share. A year earlier, they were posting a profit of around 26 cents a share. The company currently manages $34.3 billion in assets, a 2.1 percent drop from last quarter.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
West Palm Beach (HedgeCo.net) – In a letter to investors, Hedge Fund manager Pentwater Capital announced that due to a number of unexpected redemption notices for year-end they have suspended redemptions and withdrawals, effective immediately.
"The entire hedge fund industry is bracing for large redemptions at year-end so as not to become forced sellers in the midst of a severe market crisis," says the Pentwater letter, "In turn, this has put additional pressure on hedge fund investors to find liquidity wherever they can, because they have to fund their own potential redemptions."
"If the Fund were to meet the year-end redemption requests we have received, the Fund would be forced to sell more of its investments into one of the worst markets since the great depression."
The fund has instead opted to create two new classes that have modified liquidity, fee and expense provisions as compared with the current classes. Investors will have the choice to transfer all or part of their investment into one or both of the new classes or remain in the existing classes.
"We will allow investors that wish to invest new capital to do so in one of these new classes and until further notice allow them to retain the benefit of their existing high water mark on any new investment. Further, investors that have already submitted a redemption notice will have a one-time option to rescind that notice, reduce the size of their redemption request, and/or choose to participate in one of our new classes."
Pentwater was not immediately available for comment.
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USA Today – The great unwind in the secretive hedge fund world caused by steep losses has contributed to the megapain in the stock market.
Wealthy folks and big investors yanked a record $31 billion to $43 billion out of hedge funds in the third quarter, according to estimates from tracking firms Hedge Fund Research (HFR) and TrimTabs. As a result of ongoing redemption requests from worried investors, the so-called smart-money crowd has been forced to sell assets to raise money to pay back investors.
That vicious cycle of forced selling by these private investment funds has exacerbated the heavy pressure that has pushed the U.S. stock market down as much as 43% from its October 2007 high. "It is really like a global margin call. It feeds on itself," says Woody Dorsey, president of Market Semiotics, which specializes in behavioral finance.
