Now On Sale: Investors Dumping Hedge Fund $

Date: Monday, January 12, 2009
Author: Richard Wilner, NY Post.com

Some battered hedge fund investors are so desperate to get out of their positions that they don't mind selling them - for 75 percent off.

Some hedge funds lost 50 percent to 60 percent of their value in a brutal 2008 - and many have put up gates to keep investors from withdrawing their funds. That hasn't stopped the beaten down individuals or funds of funds from turning to brokers to peddle their stakes.

At the Liberty View Credit Opportunities Fund, one investor was willing to give up three-quarters of his watered-down position just to get out, according to a letter sent to prospective buyers of the stake by one broker, Bahamas-based Hedgebay Trading Corp.

A $1.4 million investment in the Amber Fund Ltd. was on the block for 50 percent of its value while an opportunistic investor with $6 million could snap up a $10 million position in the Highland Credit Strategies Fund Ltd. - at a cool 40 percent discount, according to the Nov. 13 letter, which was viewed by The Post.

"While some might ask why an investor would want to get into a beaten down hedge fund at this point in time, you have to remember that some fund managers just had a bad year in 2008 after years of success - and that the fund is probably so far under its high water mark that the new investor isn't likely to have to pay the 20 percent of profits incentive fees for quite a while," said one investment researcher.

That is true. In a letter from Hedgebay Trading last week to prospective investors, the broker wrote that it had buyers waiting to get into Perry Partner International, Kairos Focus, Wexford Offshore and Oaktree EPOF funds. No prices were listed.

Most sellers were listing their stakes at a discount between 10 percent and 30 percent. It is believed that the sellers would have the approval of the fund manager to sell their investments. In some cases, it is in the interest of the fund to have the investment sold by an existing investor than have the money withdrawn.

"The fund gets to continue to collect a management fee and does not have to liquidate positions," said the researcher, in describing why fund managers would let investments be sold. Since hedge funds started putting up gates, the selling of investment positions in hedge funds and private equity firms have become a cottage industry.

Hedgebay Trading is one of many such firms.

A recent study showed that the imposition of gates can cost investors between 5 percent and 15 percent of their money.