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Hedgeweek Comment: Funds prepare to counter potential redemptions

As fears of mass redemptions reverberate through the hedge fund industry, many managers are implementing defensive tactics to counter the possibility of investors withdrawing their capital

As fears of mass redemptions reverberate through the hedge fund industry, many managers are implementing defensive tactics to counter the possibility of investors withdrawing their capital. For example, RAB Capital has won a vote allowing it to freeze client redemptions from its flagship Special Situations fund for three years, which otherwise could have faced liquidation after its value fell by half this year.

The company reported that investors in the Cayman-domiciled fund approved the plan by a ‘considerable margin’, with at least 75 percent of the company’s shares required to vote in favour in order to approve the plan. The fund had USD790m of assets as of September 25, compared with USD2bn at the end of last year. RAB chief executive Stephen Couttie said that ‘the three year lock-up is the best way [for investors] to secure value from their investments’.

To meet potentially large redemptions, hedge funds and the fund of funds that are their biggest investors are already holding record levels of cash. Some funds are freezing redemptions to give managers time to sell more illiquid assets to raise cash. Others are imposing a cap that limit the proportion of a fund’ s capital that can be withdrawn by investors at ony one time.
 
Those who can are opting for a longr-term strategy such as RAB’ s move to lock up capital for the exceptionally long period of three years. But the firm was helped by investor confidence engendered by the previously stellar track record of the Special Situations strategy. Other managers may not enjoy the same faith on the part of their clients.

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