Suspending Redemptions: Estimated Time to get money back

Nonius · Post by **Nonius** » Wed Nov 05, 2008 7:39 am

Does anyone know of any studies about the average/worst/estimated time to recover investment monies when a hedge fund suspends redemptions?

If not, I suppose I'll be able to do the study myself with the cohort I've right now. But, that's going to take a loooong time I suppose.

I guess there's a secondary market on hedgebay as well.

granchio · Post by **granchio** » Wed Nov 05, 2008 11:54 pm

what's the legalities of suspension? can it not be challenged in court? did investors sign up to the possibility of it happening?

also: what are gates? how do they differ from suspended redemptions?

thanks!

rowdyroddypiper · Post by **rowdyroddypiper** » Thu Nov 06, 2008 1:00 am

also: what are gates? how do they differ from suspended redemptions?

Gate provisions allow the manager to restrict the percentage of investment that can be withdrawn during a period. Suspended redemptions could be thought of as a particular case of gates where the redemption percentage is 0.

HitmanH · Post by **HitmanH** » Thu Nov 06, 2008 2:32 am

what's the legalities of suspension? can it not be challenged in court? did investors sign up to the possibility of it happening?

Perfectly - have you read the prospectus? (at least the ones we have written) - directors' discretion can do about everything... What may be a more interesting angle to target the managers is to try and prove that the directors aren't as independent as they can be - and maybe the manager may not be too insistent on keeping the money in the fund...

Nonius · Post by **Nonius** » Thu Nov 06, 2008 6:45 am

RPP is right. so is HitmanH.

most prospectuses have language that allow directors to suspend redemptions or even the NAV calculation under fairly general/grey circumstances. one also needs to review rights given in Articles of Association for this point.

people do sue though; happens all the time.

problem with redemption suspension, as opposed to gating, is that it's indefinite. with gating, you can get your money out (in a zeno's paradoxical limit) in a definite amount of time.

granchio · Post by **granchio** » Thu Nov 06, 2008 2:16 pm

thank you all. BTW: i have not read any prospectus as i have not put any money in HF's - and certainly i wouldnt be too happy to give such discretion to directors...

polysena · Post by **polysena** » Thu Nov 06, 2008 7:10 pm

Are HF really roach motels? talks about 3 years for one.. worst case?

Nonius · Post by **Nonius** » Thu Nov 06, 2008 10:33 pm

thanks for the article Polysena...

Granchio, yeah, you're right...it's not a great situation. Especially if the board isn't very independent.

HitmanH · Post by **HitmanH** » Fri Nov 07, 2008 10:54 am

On an associated note - we've seen an interesting opportunity out of this.

A former colleague is setting up a fund which would, to avoid funds side-pocketing difficult assets - would have the sole focus of purchasing the difficult assets from a fund - enabling it to meet redemptions / liquidity to it's investors - and this fund would focus on the orderly sale of these assets.

I'm not saying it's going to be a good idea - as I've reservations over how they will arrange the initial transfer price - and who'll the assets will later be disposed to - but it's an interesting solution for funds to keep themselves open to subscriptions/redemptions...

Tradenator · Post by **Tradenator** » Fri Nov 07, 2008 11:05 am

I haven't read any of these, but perhaps they might help give you some ideas.

[url=/User%20Files/1915/LiquidityDerivativesByBhaduriMeissner-Youn.pdf]Attached File: LiquidityDerivativesByBhaduriMeissner-Youn.pdf[/url]

[url=/User%20Files/1915/TheValueOfLiquidityAndOptionTimingFromASimpleGame.pdf]Attached File: TheValueOfLiquidityAndOptionTimingFromASimpleGame.pdf[/url]

[url=/User%20Files/1915/LiquidityBuckets.pdf]Attached File: LiquidityBuckets.pdf[/url]