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More Gates, Doors Shutting At HFs

Date: Monday, March 10, 2008
Author: Hedge Fund Daily

The tightening credit situation for hedge funds has led to a growing number limiting exits through gates or shutting the door on redemptions for a period altogether. Business Week puts the number at 24, as Reuters reports that hedge funds are moving to those courses of action to avoid fire sales to pay clients who ask to pull their investments. “We see a lot of situations that aren’t total write-offs but where it’s more a question of suspending dealing or a gate,” an unnamed fund of hedge funds manager told Reuters. Stoking the fears that prompt the suspensions or the gates, which Reuters says typically range between 10-25% of investments per quarter, are the recently announced liquidation of the $2 billion Peloton ABS Fund, and the specter of an asset sale at Carlyle Group-managed Carlyle Capital Corp. after it failed to meet a margin call of some $37 million (see item below.) The FOHF manager, noting the increasing problems, says it’s a combination of three things: “credit lines being reduced or pulled, illiquidity in the underlying market and redemptions from clients,” which he says he suspects  are on the rise. Reuters says larger funds have less to worry about. “Smaller, less liquid funds may be more susceptible to these pressures due largely to less favorable provisions with their counterparties and more concentrated investor bases,” Odi Lahav, head of Moody’s European Alternative Investment Group, told Reuters.