BOSTON (Reuters) - Hedge fund Ore Hill Partners, which specializes in credit strategies, has barred clients from redeeming their money from its flagship offering, imposing a freeze just as investors clamored for an exit, the company said on Friday.
The firm, half owned by Man Group Plc (EMG.L), the world’s largest publicly traded hedge fund, put up a so-called gate provision on its roughly $1.2 billion Ore Hill International portfolio this week, limiting the amount of withdrawals after investors sought the return of roughly $300 million, said an investor who asked not to be identified.
Heavy redemptions for September triggered an automatic gate, said Sophie Sophaon, a spokeswoman for the fund. Fund directors are considering what measures to take that will be in the best interest of all investors, she added.
Ore Hill manages roughly $3 billion in total and Sophaon said other strategies are not affected by this measure.
Through July, the portfolio lost 6.5 percent this year, unnerving many investors enough to ask for their money back sooner rather than later, said the investor, who asked to remain anonymous because he did not want to be publicly identified speaking about the private offering.
The fund returned 1.8 percent last year after gaining 13.3 percent in 2006 and 10.95 percent in 2005.
The fund’s managers told investors a board meeting was planned and more information would be announced soon, sowing uncertainty among some investors over what might happen to their money now that it is locked in longer than they had hoped, the investor said.
Unlike mutual funds, hedge funds often lock in client money for many months or even years.
Ore Hill is the latest fund firm to impose such a gate, following Drake Capital Management, Tisbury Capital Management and Pardus Capital Management, which all put up similar restrictions this year.
While gates may help fund managers salvage business by allowing them hold onto money during difficult times, hedge fund industry experts say they are generally a troubling sign that can signal that a fund’s end is near.
This year is especially difficult for the once red-hot $2 trillion hedge fund industry. Managers suffered through their worst quarter ever at the start of 2008 when the credit crisis widened. Through July, the average hedge fund lost 3.5 percent this year, according to data from Hedge Fund Research.
Ore Hill made headlines in March by teaming up with the Man Group, which agreed to buy a 50 percent stake. At the same time, Ore Hill agreed to acquire a 50 percent stake in Pemba Credit Advisers, Man’s European credit manager unit that has roughly $3.7 billion in assets.
The deal allowed Ore Hill founders Ben Nickoll and Fritz Wahl, who worked together at Morgan Stanley, to concentrate on the investments, while Man focused on selling the products.
Editing by Jason Szep; Editing by Andre Grenon