Even Successful Hedge Funds Face Withdrawals

Even the most successful hedge funds can face withdrawals. This was illustrated in June as giant hedge fund Paulson & Co. lost more than $2 billion in assets under management. Although, about the thirds of that amount can be accounted for by market losses, Paulson & Co. likely paid out about $600 million in investor withdrawal requests. In June, Paulson & Co.'s financial services Recovery Fund, lost more than 12%. Paulson's best performing fund was its gold fund, up more than 7% in June.

On the other hand, hedge funds actually did quite well in May in terms of investor flows, taking in more than $4 billion in new assets, even while the industry lost $30 billion in trading the same month.

Source: Market Watch

DE Shaw Group to Lighten Redemption Restrictions

D.E. Shaw & Co., the $29 billion investment firm founded by David Shaw, will permit investors to withdraw more money from its two biggest funds than previously permitted, according to Bloomberg.

DE Shaw recently limited quarterly redemptions in November to 8.3 percent of investor assets after a surge in withdrawal requests. The NYC-based firm is now offering clients the one-time option to pull 16 percent of their assets from two of its funds, its Oculus and Composite funds, next month. Those who accept won’t be able to make additional withdrawals this year.

Preferential Hedge Fund Redemptions

Are hedge funds giving certain clients preferential treatment with regard to redemptions?

SEC Commissioner Elisse Walter believes some funds have done so. “Principals, employees or favored investors of the hedge-fund adviser may have received ‘preferential redemptions’ from the fund at issue.” Walter said in testimony to the House Financial Services Committee today.

More than 1/6 of hedge funds are halting redemptions, limiting withdrawals from certain funds, or altering their redemption schedule.

The SEC is also zeroing in on trading irregularities and lack of due dilligence by feeder funds, such as those that gave money to Bernard Madoff. The SEC claims to be developing new "technological tools" to deal with trading issues such as insider trading and front running.

Hedge Fund Pershing Square Capital Management Allowing Redemptions

William Ackman, 42, fund manager of hedge fund Pershing Square Capital Management, is cutting fees and allowing investors to withdraw what is left of their investments. This move could encourage other hedge funds to eliminate some of their restrictions on withdrawals and redemptions.

Of course, not all funds have had as poor performance as Pershing Square's Pershing Square IV Fund, which is down 90% on the year and is left with only $25 million in assets.

Pershing Square Capital Management, based in New york, is waiving performance fees until the fund reaches its high water mark, though given the losses that could be decades.

Record Hedge Fund Redemptions in Q4

Hedge Fund Redemptions Reach Record in Q4 2008:
Hedge fund investors withdrew more than $150 billion from hedge funds in the fourth quarter of 2008, a new record. Several funds including Tudor Investment Group, Citadel Investment Group, Drake Capital, and other large funds were forced to either suspend redemptions or create new lock-on requirements to halt the flow of assets.

Hedge funds lost more than 18% of their value in 2008 and saw total hedge fund assets under management (AUM) drop 30% from $2.0 trillion to $1.4 trillion in 2008.

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List of Hedge Funds Halting Redemptions

Hedge Fund Redemptions Halted
Dozens if not hundreds of hedge funds have limited investors' redemptions in the last several months. Below is a partial list of hedge fund that have limited investor redemptions/withdrawals:


Absolute Capital Management - The fund that once managed more than $3.2 billion notified investors in October, 2008 that it would halt withdrawals and close two of its funds.

Basso Capital Management - Connecticut based Basso Capital Management halted withdrawals from several of its funds for the third quarter, 2008.

Blue Mountain Capital Management - On Nov. 4, 2008 Blue Mountain Capital Management, facing withdrawalas from investors and fund of funds, halted withdrawals. Investors were given 2 choices: 2) Pull their money at a "cost" or 2)Lock up their investment for a period of time with "fees consistent with longer lock-up periods."

Deephaven Capital Management - Knight Capital Group's Deephaven Capital Management halted withdrawals from two of its funds in early November, 2008 for the third quarter.

Diamondback Capital Management - Diamond Capital told investors some of their money would be unavailable for redemption because assets were tied up in Lehman Brothers.

Drake Capital Management - New York based Drake Management halted withdrawals from certain funds in October, 2008.

Ellington Capital Management - Ellington Capital Management, a CT based hedge fund founded in 1994 restricted withdrawals in the middle of 2008.

Fortress Investment Group - Mega hedge fund Fortress Investment Group had $4.5 billion in redemptions in the first three quarters of 2008, totaling more than 10% of the firms assets under management.

GLG Partners - European hedge fund, GLG Partners said it would limit withdrawals from its $3 billion long-short European fund. The hedge fund manages $19 billion overall and previousliy halted redemptions in its emerging markets fund.

Highbridge Capital Management - Highbridge Capital Mamnagement, a hedge fund run by JP Morgan, said in November, 2008 that it would stop redemptions in its Asian Opportunities Fund, which at the time was down 32% on the year.

Pardus Capital Management - The $2 billion fund first notified investors it would halt redemptions in March of 2008. As of that time, the fund was down 40% from its high-water mark.

Platinum Grove Asset Management - Former nobel prize winner, Myron Schole's hedge fund Platinum Grove Asset Management stopped redemptions from its largest fund after losing more than 20% in October 2008 alone.

Tudor Investment Group - In November 2008, Tudor Investment Group announced it would halt redemptions from its DVI Global Fund. Tudor said it would split the fund in two, to create one fund for liquid assets and another for illiquid assets.

Again this is just a partial list of hedge funds that have halted redemptions in 2008. We will keep you updated in the likely event that more funds prevent investors from getting to their money.

Hedge Fund, Tudor Investment Halts Withdrawals

Tudor Investment Group is halting withdrawals from its BVI Global fund. Tudor is splitting the hedge fund into two separate funds and told investors they cannot withdraw funds until the restructuring is complete. Tudor's BVI fund is down 5% and investors have asked for redemptions equal to about 14% of the fund's assets.

Tudor Iinvestment Group's founder, Paul Tudor Jones, said he plans to move illiquid assets into a separate fund called Legacy, while leaving higher quality assets in the BVI fund.


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Global Hedge Fund Assets Decline by $170B in Q3, 2008

Global hedge fund assets fell by $170 billion in the third quarter of 2008. There have also been reports that large hedge fund redemptions worldwide accelerated in October and November. The $170 billion decrease in hedge fund assets in the third quarter represents an almost 10% decrease worldwide and comes amid plummeting asset prices on everything from commodities to stocks and most forms of debt.

Interestingly, the hedge fund strategies with the highest redemptions were long/short equity and fixed income arbitrage. Other hard hit strategies in terms of asset outflows were emerging markets and multi-strategy funds.


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Asian Hedge Fund, Highbridge Capital Management, Limits Redemptions

Highbridge Capital Management, a hedge fund owned by JPMorgan, may limit withdrawals from its Asian Opportunities Fund. The fund is down 32% on the year and Highbridge Capital Management intends to give investors half of their money returned by the end of January. The rest of investors' money will be returned in 12 to 18 months, reports Bloomberg. This comes after earlier news that Highbridge might limit withrdrawals from its Asia Opportunities Fund completely.

Though Highbridge's Asia-focused fund has performed poorly this year, it has returned more than 20% since inception, and double digit gains in 2006 and 2007.

JP Morgan purchased an interest in Highbridge Capital Management in 2004 and increased its interest to 78% in January.


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Fortress Redemptions Reach $4.5 billion for First Three Quarters

Fortress redemption requests totaled $4.5 billion for the first three quarters of this year. Fortress' assets under management ended the period at $34.4 billion. Redemptions for Fortress come amidst poor performance in several of their hedge funds including the Drawbridge Global Macro Fund which is down more than 13% on the year.

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Myron Scholes' Platinum Grove Asset Management Halts Withdrawals.

Platinum Grove Asset Management, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October.

With hedge funds down 20% this year on average, Nobel laureate Myron Sholes' hedge fund Platinum Grove Asset Management, is temporarily stopping withdrawals from its largest hedge fund after losing almost 30% in the first part of October alone.

Ironically, Scholes, who won the Nobel prize for economics in 1997, was also a key part of Long-Term Capital Management, one of the largest hedge funds to ever collapse. Platinum Grove managed $4.8 billion as of the end of Aug.

On Friday, Platinum Grove Asset Management released a statement" "Platinum Grove will use this period to consult with its investors and counterparties, determine their future intentions and manage the assets of the fund accordingly."

Hedge Fund Manager Says Redemption Fears are Overblown

Barton Biggs of Hedge Fund Traxis Partners says fears of massive withdrawals from hedge funds are overblown. Biggs credits hedge funds' good collective performance during the bear market of 2002-2003. By last year the hedge fund industry managed $1.9 trillion worldwide. But this year hedge funds have performed poorly as a group, leading to questions about investors' willingness to leave assets in underperforming funds. This is particularly true for market-neutral and other supposedly low-risk and uncorrelated hedge fund strategies. Now these trading strategies are highly correlated to the broader markets and mired in volatility. However, Biggs feels fears of hedge fund redemptions are likely overblown.

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