Reuters.uk – Investors may want to quickly pull out of hedge funds if global economic conditions turn sour, showing the risks of a recent trend of contracts tying clients into funds for long periods,industry executives warned.
The periods over which investors agree to hold money in funds before they can exit — known in the industry as “lockups” — are rising to well beyond the previously typical one month, speakers at a hedge fund conference said on Tuesday.
Hedge fund firms should ensure that investors who have not yet liquidated some of their holdings are not forced to book big losses if they are unable to pull out of a fund, Daniel Riediker, partner and chief executive officer of asset manager Alegra Capital, told the Global Alternative Investment Management (GAIM) conference.
“If you run into a more difficult cycle you want to be sure that those remaining in a fund do not get punished,” Riediker said.
Among some of the hedge fund strategies such as credit funds, economic conditions have been benign and default rates low, but such portfolios could be hurt if defaults start to rise, he said.
“These strategies do have the potential of rising volatility as default rates go up.”
