Hedge funds offer flexibility in uncertain markets

Date: Wednesday, May 7, 2008
Author: Hedgeweek.com

Hedge funds have, to put it mildly, a mixed reputation. They were famously dubbed 'locusts' by one-time German labour minister Franz Müntefering after activist funds blocked Deutsche Börse's bid for the London Stock Exchange and forced out its chairman and chief executive. Star managers' remuneration running into 10 figures has stirred unease at a time of economic distress for many ordinary people.

But hedge funds can show a more attractive, less uncompromising face, too. In the face of tough economic conditions for their investors, several managers have demonstrated that when it comes to investment terms, they can be more flexible than they are often given credit for.

A number of managers are reported to be offering investors heavily discounted fees if they invest in their new funds. The USD3bn London hedge fund manager Endeavour Capital and USD2.5bn Drake Management of New York are offering to waive performance fees on new funds until they have made back the losses that led to the closure of their previous vehicles.

Meanwhile, GLG Partners is reported to have advised investors in its emerging markets fund, which represented USD5bn of the firm's USD24.5bn in assets under management at the end of last year, that they may not be penalised if they withdraw their money following the departure of the fund's manager Greg Coffey in October.

GLG has said it is considering waiving both the penalties and redemption gate provisions for the fund on its redemption date of November 3. It would be following Citigroup, which has announced it will allow investors in the USD4.5bn Old Lane multistrategy fund previously run by Citi's now chief executive Vikram Pandit to redeem their investments without restrictions as of July 31.

A number of high-profile funds have encountered difficulties - or worse - in the face of the credit crunch. A number of managers have made clear that in troubled times, they are also ready to respond to investors' concerns.