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Cerberus to ban withdrawals from new funds

Date: Thursday, September 3, 2009
Author: Megan Davies and Juan Lagorio, Reuters

Cerberus Capital Management LP CBS.UL said on Wednesday it will prohibit investors in new hedge funds from withdrawing money for three years.

Earlier on Wednesday, the Financial Times reported Cerberus planned to bar withdrawals in two new funds to prevent the outflows that followed its loss-making acquisitions of carmaker Chrysler and financial services company GMAC.

"The three-year lock-up period will apply to all new hedge funds," Timothy Price, managing director and spokesman for Cerberus, said in a statement to Reuters.

On Tuesday, Cerberus dismissed market speculation that some of its hedge funds were in danger of default.

High-profile investment losses at Cerberus prompted investors recently to seek the withdrawal of $4.77 billion from two of its hedge funds. That represents about 60 percent of the $7.9 billion managed by Cerberus Partners LP and Cerberus International LP, and 19 percent of Cerberus' total $24.3 billion in assets managed through a dozen funds.

Cerberus built a strong track record by quietly investing in hard-hit companies, debt and real estate. Its winning streak ended when it led $15 billion of investments for control of Chrysler and GMAC, the former finance arm of General Motors.

Cerberus wrote down most of its Chrysler investment when the automaker headed into bankruptcy earlier this year, while its GMAC stake was slammed when the U.S. government bailed out the lender.

The Cerberus Partners LP and Cerberus International LP funds lost more than 20 percent last year, blocked clients from withdrawing funds in December, and halted making new investments during the fourth quarter. The funds are little changed this year.

Recently, Cerberus asked clients of the two funds whether they wanted to stick with their investments, at a lower fee, or depart. Investors with more than 70 percent of fund assets not controlled by Cerberus partners elected to pull out.

"The redemption requests were driven primarily by liquidity requirements, not Chrysler and GMAC. They are a result of global economic conditions," Price said.