U.S. hedge funds anxious as redemption deadline looms

By Svea Herbst-Bayliss

BOSTON (Reuters) - Anxiety is sweeping the hedge fund industry before a crucial deadline on Saturday, when investors angered by recent heavy losses are expected to demand the return of billions of dollars.

"Managers have a pretty good feeling for what is coming, and there are significant redemption requests out there," said Stewart Massey, founding partner of Massey, Quick & Co., an investment consultant that puts money into hedge funds.

Saturday is the last day for thousands of investors to notify hundreds of hedge funds if they want their money back by year's end.

Hedge funds that require three months notice from investors who wanted to exit by year's end had a similar deadline on September 30 -- also known in the industry as "D-Day."

More such deadlines loom for funds that allow investors to give less notice before taking their money out, fund managers said.

In the last two days, several prominent fund managers made public predictions that illustrate the depth of gloom now sweeping the $1.7 trillion hedge fund industry.

Pension funds, endowments and wealthy investors have put money into hedge funds so quickly that industry assets have doubled in about three years.

Hedge funds are nursing their the worst-ever losses, with the average fund down 15 percent this year, and many investors are punishing the managers for lousy returns.

The flood gates are about to open.

George Soros, an industry elder statesman who emerged from retirement at age 78 to protect his fortune at Soros Fund Management, said he expects hedge fund industry assets "will shrink by between 50 percent and 75 percent."

Daniel Och, who runs Och-Ziff Capital Management Group (OZM.N: Quote, Profile, Research, Stock Buzz), told analysts he expects investors to run for the exits soon. The same goes for Wesley Edens, the head of Fortress Investment Group's (FIG.N: Quote, Profile, Research, Stock Buzz), who is also bracing for redemption notices.

"We expect to experience increased redemptions at year end" in our liquid hedge funds, Edens told investors on a conference call on Thursday, adding that he expects the pace of redemptions to remain high next year.

PUNISHMENT

Even though hedge fund losses are less than mutual fund losses, wealthy investors said they are disappointed because hedge funds have been just as vulnerable to market declines. They are also tired of the long lock-up periods and lack of transparency in the funds, several investors said.

In October alone, investors pulled $100 billion from the loosely regulated funds, according to hedge fund data tracker, Eurekahedge. And investors expect that number to keep rising in November and December. Continued...

http://www.reuters.com/article/americasDealsNews/idUSTRE4AD04220081114

New York (HedgeCo.Net) - Clients of Fortress Investment Group LLC have requested to withdraw more than $4.5 billion of their assets over the next few months, according a statement released by the hedge fund yesterday.


The company reported its first annual loss since going public, mostly due to its Drawbridge Global Macro funds losing over 13 percent this year through the end of September. If investors have their way, this would take a 25 percent chunk out of the total assets under Fortress’s management.

Fortress isn’t the only hedge fund dealing with a hit of investor withdraws. The sour economy and recent credit crisis has sent a wave of panic over some investors, prompting them to rush for redemptions. Some hedge funds choose to “freeze” investor withdraws until the market takes a turn for the better, or until they can figure out how to wind down the fund in an orderly manner.

Fortress said it received $2.6 billion in redemption requests for its liquid hedge funds, which include the Drawbridge Global funds and the Fortress Commodities funds. Its hybrid hedge funds, which include the Drawbridge Special Opportunities funds which saw a drop of over 7 percent in the third quarter, and the Fortress Partners funds, will lose $1.9 billion in capital because of the withdraws.

Fortress reported a third-quarter loss of $20 million, equivalent to 4 cents a share. A year earlier, they were posting a profit of around 26 cents a share. The company currently manages $34.3 billion in assets, a 2.1 percent drop from last quarter.

Julie Scuderi

http://www.hedgeco.net/news/11/2008/investors-rush-for-redemptions-in-fortress-hedge-funds.html