Some Hedge Funds Still Feel Effects Of 2008 Redemptions
September 03 2009 - 3:58PM
Dow Jones News
A year after investors began withdrawing money in a panic from
hedge funds, the surviving funds seem to fall into two camps.
Those funds that were quick to meet redemption requests are, in
many cases, beginning to get new investment inflows again. But
funds that tried to bide their time returning investor money are
often still trying to pay investors back.
A year ago, the collapse of credit markets and Lehman Brothers
Holdings Inc. (LEHMQ) led many investors in hedge funds to demand
their money back. Investors can withdraw their money from hedge
funds only periodically. For some hedge funds that allow
redemptions only once a year, September 30 is the first deadline
for investors who want to withdraw cash.
In 2008, September happened to be the month that saw the entire
financial system implode. Fearing big losses, panicky investors
pulled their money out like never before, causing hedge-fund
managers to sell assets just to satisfy those redemptions.
As the end of the year - and subsequent withdrawal deadlines -
approached, many managers slowed redemptions, or stopped them
altogether, to avoid further losses. The redemption cycle pushed
into this year, as many healthy funds were being used as "ATM
machines" by investors who were barred from leaving other
funds.
Steven A. Cohen's SAC Capital Advisors, which, like many others,
experienced redemptions last year, is now receiving inflows,
according to a person familiar with the firm.
Och-Ziff Capital Management LLC (OZM), which lost less than the
average hedge-fund company in 2008 and which had heavy withdrawals
late last year and early in 2009, has had inflows the last two
months, it said in regulatory filings.
Louis Bacon's Moore Capital Management, which makes investors
who wish to leave notify it by the end of October, had high
withdrawals in its better-performing funds, including 50% in its
best fund. But, for the first time in a year, Moore is now
receiving inflows, according to a person familiar with the matter.
Older firms such as Moore Capital have the added advantage of
having longer-term investors who have been through bad times
before. In fact, Moore's funds suffered through worse redemption
problems in 2001 and 2002.
Among managers of funds that halted redemptions, there is a wide
disparity between managers who have since returned the money and
the ones who haven't yet.
Among those who put up "gates" to delay investor withdrawals,
Fortress Investment Group LLC (FIG) was quick to satisfy its
investors. It has paid back about 90% of the money investors asked
to redeem from its Drawbridge funds, and has since lifted the gate
altogether.
Then there is Ken Griffin's Citadel Investment Group, which
suspended redemptions in its flagship funds late last year, and has
yet to lift that suspension. Citadel recently told investors it
will return $250 million by Oct. 1 and more at the end of the year.
While Citadel hasn't said exactly how much money investors are
looking to withdraw, it totaled roughly $1 billion as of the end of
2008, according to letters the manager has sent to investors.
In between, there is Tudor Investment Corp., which last year
suspended redemptions in its Tudor Global BVI Fund. Tudor split the
fund in two, with one of the funds dedicated to less-liquid
investments. Tudor's performance has improved and it has paid off
some redeeming investors, but still has more redemptions to meet,
according to a person with knowledge of its funds.
For investors, the redemption cycle has led to something that
might end up as a good thing: More hedge funds are offering
concessions, such as lower fees, in the hope that the next
prolonged market crisis won't create an exodus from their
funds.
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com