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Will hedge fund investors use a chance to cash in today?

Date: Tuesday, September 30, 2008
Author: Michael C. Juliano, Stamford Advocate.com

There's tension in the hedge fund industry as investment analysts said they expect many investors to cash in their holdings today after Monday's House rejection of a $700 billion bailout for the nation's financial system.

Many hedge funds consider Sept. 30 a quarterly redemption period when investors may cash in investments.

K. Daniel Libby, a senior portfolio manager for Select Access Funds of the Greenwich investment firm Sands Brothers, said he expected many investors to notify hedge fund operators that they were pulling their investments today so they can get out by year's end.

"For any hedge fund investor who has not reduced his risk to exposure up until now, they're definitely going to take the last opportunity now," Libby said.

Many investors will give their 90-day notifications, as required by many hedge fund operators, to sell their assets so they can make them liquid them by the end of the year instead of six months from now, Libby said.

"I think, on the margin, people are more likely to be redeeming," he said.

But other observers of the hedge fund industry, such as Steve McMenamin, executive director of the Greenwich Roundtable, an investment research firm, don't expect investors to back out today.

"I think some hedge fund investors would like to move to increase their cash positions to protect their capital and buy at the bottom," McMenamin said.

Joel Schwab, managing director of hedgefund.net in New York, said sophisticated investors probably will stay in hedge funds, which number about 300 in Greenwich.

"If anything, hedge funds are likely one of the better parts of their investment portfolios," Schwab said. "While going through their worst period ever, hedge funds are still doing a lot better than other investments."

The bailout failure may cause less experienced investors to panic and leave hedge funds, but the industry will do fine, Schwab said.

"Will that cause people to back out of hedge funds?" he said. "Absolutely, but it's hard to tell how many."

Despite the market uncertainty, Shariah Capital in New Canaan will invest $150 million in three hedge funds with the Dubai government.

Shariah-compliant strategies are designed for Islamic investors.

The Quran doesn't allow a person to sell something he doesn't own, which rules out short-selling - a widely used strategy that enables hedge funds to post high returns even in bear markets.

Together, Shariah and Dubai have put $50 million in Toqueville Asset Management, which specializes in precious metals, coal and steel investors Zweig-DiMenna International and Lucas Capital Management, investors in natural gas.

"We want to make it clear that we're investing in capital markets," said Eric Meyer, president and chief executive officer of Shariah Capital. "We're tying to look a bit longer term."

- Staff Writer Michael C. Juliano can be reached at michael.juliano@scni.com or 964-2417.