19/11/2009 Author: Zaki Abushal

Redemption gates lift as fund performance returns

Hedge fund gates are being lifted quicker than expected, despite industry reports suggesting 8.6% of all hedge fund capital – totalling $1.4trn – is still ‘impaired’ in some way.

According to a recent survey by Credit Suisse Tremont, the amount of impaired assets – defined as funds that have pulled down gates, side-pocketed illiquid assets and suspended redemptions – has steadily reduced from 11.6% in 2008 and around 9.6% in Q2 of this year. However, better-than-expected liquidity in the market and strong hedge fund performance has meant that the process is now accelerating with hedge funds lifting gates sooner than expected, according to Ken Kinsey-Quick head of multi manager funds at Thames River Capital.

Question marks over investor behaviour toward managers that suspended redemptions remain. An Ernst & Young report last week, covering $80bn of industry assets, stated 53% of the 31% of participants who employed strategies to limit redemptions regarded them as a good way of keeping investor capital in the fund in the long run.

However, Kinsey-Quick has his doubts, anticipating that funds with gates still in place could yet be punished by investors. “I will not as a general rule [invest in a hedge fund that has suspended redemptions] although there are always exceptions to any rule, but it most certainly is not a positive long-term policy,” he said.

In Q3, according to Credit Suisse Tremont data, hedge funds experienced minimum net outflows but made up the shortfall thanks to better-than-expected performance.