Industry giants limit investor withdrawals

Date: Friday, December 5, 2008
Author: Alistair Barr, Marketwatch.com

Some of the top hedge-fund firms have taken steps to limit investor withdrawals in recent days, demonstrating how the financial crisis is affecting even the oldest and most respected players.

Farallon Capital Management, ranked earlier this year as the second-biggest hedge-fund manager by Alpha Magazine, put up a so-called gate after investors requested redemptions, according to two people familiar with the situation.

Gates are imposed if investors ask to withdraw more than a certain quantity of assets from a hedge fund, usually about 20% of assets under management. When these levels are breached, funds can limit total redemptions and investors only get back a portion of the money they've asked for.

Farallon, a $30 billion firm run by Thomas Steyer in San Francisco, raised the gate on its biggest hedge fund, Farallon Capital Institutional Partners LP, after investors asked to take back more than 25% of assets under management, according to Bloomberg News.

Farallon plans to resume redemptions as early as January and the fund won't charge management or incentive fees during the time the gate is up, Bloomberg said. Investors will pay expenses such as legal and accounting fees though, the news service added.

Farallon is one of the highest-profile firms in the hedge-fund industry to have limited redemptions. More than 75 firms have already taken similar steps to avoid being forced to sell assets quickly to raise cash. See full story.

D.E. Shaw, according to Alpha magazine the sixth-largest hedge-fund firm, put up gates on its Composite and Oculus funds this week, according to Bloomberg.

The gate on D.E. Shaw's Oculus fund was triggered after investors asked to redeem more than 8% of assets under management, Bloomberg reported, even though the fund is up roughly 10% this year.

Fortress Investment Group

, among the 20 largest hedge-fund firms in the world, temporarily suspended redemptions from its Drawbridge Global Macro funds after investors sought to pull roughly $3.5 billion, according to a Securities and Exchange Commission filing late Wednesday.

Fortress also said it plans to restructure the funds but didn't provide details in its filing.

Tudor Investment Corp., the 23rd-largest hedge-fund firm as ranked by Alpha, suspended redemptions from its main Tudor BVI Global fund in recent days, according to a person familiar with the situation.

Tudor proposed to split the fund in two. One of the new share classes is to hold more illiquid assets, such as emerging-market credit securities, and would lock up investors' money for longer, the person explained on condition of anonymity.

Alistair Barr is a reporter for MarketWatch in San Francisco.