28/10/2009 Author: Elana Margulies

Investors stick with re-structured HBK

HBK Investments’ long-running restructuring saga has finally reached a conclusion, almost two years after the investment manager suspended redemptions.

The majority of investors have decided to remain loyal to Dallas-based HBK and stay invested, despite the option to join a liquidity pool and the chance to exit the hedge fund. According to a source close to the plans, almost two-thirds, or 64%, of allocators have decided to stay in the global multi-strategy fund while the rest chose to go into the liquidating pool. The decision made by investors means $3.7bn of assets under management will remain with HBK, while the remaining $2.1bn will go into the liquidating portion.

At its height in 2007, HBK Investments reportedly managed more than $14bn in assets under management. Since then the hedge fund has shed assets and cut a large proportion of staff. In a presentation seen by HFMWeek, HBK revealed that from November 2007 through July 2009, HBK reduced its headcount from more than 1,000 employees to around 200. Some of the key departures include Sam Morland, partner, and Kevin O’Neal, COO, who are both retiring. Ben Heller, the partner who oversees emerging markets, is also rumoured to be leaving. HFMWeek previously reported that Morland, the most senior-level employee in the London office, was taking a leave of absence.

At the same time, the firm has also curtailed the number of employees with portfolio management authority from 54 to 14.

According to an investor, HBK suspended redemptions at the end of 2007, when the fund was inundated by requests from investors for their capital to be returned, invoking a 10% quarterly gate, which still hasn’t been lifted.
In the presentation obtained by HFMWeek, HBK offered investors three options: remain in the existing fund, move into a new one but still stay invested, or move into a liquidating fund. If investors decide to stay invested, they will still be subject to a 10% quarterly gate, and management fees of either 1.5% or 2%, depending on the share class they choose.

Meanwhile, with the new offering, investors will have exposure to the ‘regular’ account, get a side-pocket account, have a 25% quarterly redemption rate and stay locked up until 30 June 2010. Those investors that choose the side pocket will be charged a management fee of 1.5%.

In the liquidating pool, investors will get a portion of their fund back every quarter subject to 1.5% or 2% management fees depending on their share class.

HBK is up 6.5% YTD through July. Last year it was down 16.2%.

Most hedge funds have lifted the gates imposed when investors rushed to redeem at the end of 2007 and early 2008. Although many have introduced liquidating funds or longer lock ups. A study in May by Goldman Sachs revealed 15% of hedge fund assets were still gated. In the same month, Toscafund Asset Management lifted gates on the last three of its funds with suspended redemptions.

HFMWeek reported in July that the $1.6bn Weiss Multi-strategy advisors had taken the decision to remove the provision of gates and side-pockets from its flagship Weiss Multi-Strategy Partners fund.