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Friday, 16 January 2009
Fund to Repay Investors in Securities Not Cash
GoldenTree Asset Management, a credit hedge fund, is offering investors who want to withdraw money securities instead of cash, triggering protests from those who in many cases lack means to dispose of such instruments.
GoldenTree Asset Management, a credit hedge fund, is offering investors who want to withdraw money securities instead of cash, triggering protests from those who in many cases lack means to dispose of such instruments.
Hedge funds such as GoldenTree warn investors in offering documents that they have the right to pay investors back “in kind” not cash. However, such payments in kind have been highly unusual until the current credit crisis, which has led hedge funds to place a variety of restrictions on investors trying to pull out their money.
GoldenTree, which specialises in investing in complex debt instruments, had about $10bn under management last year. But losses and redemptions could leave it with half as much if investors made good on withdrawal requests, said a person with direct knowledge of the matter. GoldenTree declined to comment.
In a letter to investors last month, GoldenTree said “withdrawing partners that do not elect to revoke their withdrawal request will receive their proceeds primarily in kind. It is unlikely that any cash will be distributed.”
This could be a problem for endowments that have little or no capability to hedge, trade or sell illiquid debt instruments. The GoldenTree letter said: “We can provide no assurances that these assets will be saleable and will no longer provide any management oversight or advice regarding such assets.”
Some investors in GoldenTree and other credit hedge funds see payments in kind as an unfair tactic designed to keep them from making withdrawals.
Mark Freed, managing director of Lyster Watson, a fund of hedge funds, said it decided to keep money with another, smaller debt fund after it told its investors they would be paid in kind.
GoldenTree was down more than 30 per cent in 2008 and is facing demands from investors for about 25 per cent to 30 per cent of their money, according to the person with direct knowledge of this. Historically, this person adds, GoldenTree tried to keep 80 per cent of its investments in easily tradable securities and 20 per cent in less liquid investments. But recently, as the markets melted down, that ratio flipped.
Golden Tree had offered investors the option of withdrawing their money every three months with 45 days’ notice. But it faced a mismatch between the duration of its investments and the length of time investors were committed, according to this person.
1 comment:
Fund to Repay Investors in Securities Not Cash
By Henny Sender in New York
13 January 2009
GoldenTree Asset Management, a credit hedge fund, is offering investors who want to withdraw money securities instead of cash, triggering protests from those who in many cases lack means to dispose of such instruments.
Hedge funds such as GoldenTree warn investors in offering documents that they have the right to pay investors back “in kind” not cash. However, such payments in kind have been highly unusual until the current credit crisis, which has led hedge funds to place a variety of restrictions on investors trying to pull out their money.
GoldenTree, which specialises in investing in complex debt instruments, had about $10bn under management last year. But losses and redemptions could leave it with half as much if investors made good on withdrawal requests, said a person with direct knowledge of the matter. GoldenTree declined to comment.
In a letter to investors last month, GoldenTree said “withdrawing partners that do not elect to revoke their withdrawal request will receive their proceeds primarily in kind. It is unlikely that any cash will be distributed.”
This could be a problem for endowments that have little or no capability to hedge, trade or sell illiquid debt instruments. The GoldenTree letter said: “We can provide no assurances that these assets will be saleable and will no longer provide any management oversight or advice regarding such assets.”
Some investors in GoldenTree and other credit hedge funds see payments in kind as an unfair tactic designed to keep them from making withdrawals.
Mark Freed, managing director of Lyster Watson, a fund of hedge funds, said it decided to keep money with another, smaller debt fund after it told its investors they would be paid in kind.
GoldenTree was down more than 30 per cent in 2008 and is facing demands from investors for about 25 per cent to 30 per cent of their money, according to the person with direct knowledge of this. Historically, this person adds, GoldenTree tried to keep 80 per cent of its investments in easily tradable securities and 20 per cent in less liquid investments. But recently, as the markets melted down, that ratio flipped.
Golden Tree had offered investors the option of withdrawing their money every three months with 45 days’ notice. But it faced a mismatch between the duration of its investments and the length of time investors were committed, according to this person.
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