Blue Mountain Suspends Redemptions

Date: Tuesday, November 4, 2008
Author: FINalternatives

Blue Mountain Capital Management is the latest hedge fund shop forced to suspend redemptions and seek a restructuring in the face of big redemption requests.

The firm has frozen its largest hedge fund, the $3.1 billion Credit Alternatives Fund, to avoid a forced asset sale, Bloomberg News reports. New York-based Blue Mountain took the step after investors sought to withdraw a “meaningful percentage” of the fund’s assets, with some of those redemption requests filed by funds of hedge funds facing “liquidity pressures” themselves.

“We are not comfortable with this state of affairs,” CEO Andrew Feldstein wrote to investors. “If we were to unwind or sell positions to meet current requirements, the severe liquidation costs would be borne inequitably by the remaining investors.”

Instead, the firm has asked investors to accept a plan under which it will waive both the notice and lock-up provisions of the fund. Under the proposal, clients could redeem their investment or exchange all or part of it with any of three share classes. Investors have until Nov. 10 to tell Blue Mountain what they want to do.

The bad news for Blue Mountain comes despite the fact that the Credit Alternatives Fund has avoided most of the pitfalls that have struck its peers, who are down, on average, nearly 20% this year. By contrast, Credit Alternatives is down just 2.4%, better than most hedge funds even outside the fixed-income strata. According to the letter, two other Blue Mountain hedge funds have posted above-average returns, with its $400 million BlueCorr Fund soaring 21.3%, and its $1.1 billion equity fund down just 0.9%.