* Some funds adjust access to cash, no big trend however
* Moves often follow periods of losses, if assets are hard
By Svea Herbst-Bayliss
BOSTON, Dec 12 Some investors in hedge funds
will have to wait to have part of their investments returned in
Alden Global Capital's Alden Global Distressed Opportunities
Fund LP, known for snapping up stakes in media and publishing
companies, told investors that redemption of a portion of their
investments would be delayed.
According to a letter reviewed by Reuters, Alden Global
Capital has put some of its clients' redemption requests into a
sidepocket, effectively restricting immediate access to some of
their money. "A portion of your withdrawal request for the Aug.
31 withdrawal date will be placed into an Alternate Withdrawal
Account," said the letter, dated that day.
The restriction, which has not been previously reported
because the fund is private, follows on the heels of a difficult
2011 when the fund, founded by vulture investing specialist
Randy Smith, suffered losses of more than 20 percent.
Alden has been a major investor in media companies including
Tribune Co, Philadelphia Media Network and A.H. Belo Corp, and
said proceeds from assets put into the sidepocket would be
distributed within 12 months of the time they were put in.
Restricting investors' full access to their money has always
created a stir in the hedge fund industry. "You are certainly
inconvenienced even though you may not be damaged," said Ken
Phillips, chief executive of HedgeMark, which helps investors
construct hedge fund portfolios and manage risk. "Effectively
all of your choices have been taken away."
To be sure, restrictions on redemptions, sometimes also
called gating or sidepocketing, are not occurring with great
speed this year, industry analysts said, noting that these types
of moves were seen mainly during the financial crisis. "We are
not hearing a lot about it," Phillips said.
But any move to restrict access is noteworthy, particularly
if it coincides with heavy redemption requests after a period of
poor performance. It often suggests that funds are invested
largely in hard-to-sell assets.
According to an investor survey conducted by consulting
group Aksia, hedge fund managers reported that 72 percent of
their clients have not changed their preferences on liquidity
terms. But managers said that 17 percent of investors wanted
greater liquidity, while 11 percent would accept lower
Hedge funds, unlike mutual funds, traditionally lock
investor money for many months and sometimes even years. They
also often have clauses in their documents allowing them to
restrict access even more sharply if they feel that is
Other firms that have recently limited access include
Salient Partners LP, which cut the withdrawals investors can
make from its Endowment Fund. Investors are now able to pull out
only 5 percent of their money by year's end because a chunk of
the fund's investments are in less liquid assets, the group said
Perella Weinberg Partners' $1.4 billion Xerion Fund also
recently told investors about a small twist in how they will get
their money back.
Dan Arbess, who delivered gains to Xerion investors during
the financial crisis and has long made successful bets on
private investments, told investors that the bulk of redemptions
will be made in cash. But investors will have a choice to
receive a small portion returned as an interest in one the
fund's private positions or to allow Arbess to manage it until a
sale is made on their behalf, according to a person familiar
with the fund.
The fund is up roughly 8 percent this year but suffered
losses in 2011, which helped prompt the redemptions. "The move
is certainly not a disaster," said a person familiar with the