Restrictions, fund freezes and putting up gates
D.E. Shaw, Farallon Restrict Withdrawals as Fund Freeze Deepens
Dec. 4 (Bloomberg) — D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months.
D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.
The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren’t forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two.
“There’s no longer the stigma associated with putting up gates or suspending redemptions as it was before this crisis,” said Jaeson Dubrovay, head of the $19 billion hedge-fund group at consulting firm NEPC LLC in Cambridge, Massachusetts. “It’s actually being encouraged by some large institutions as a way to protect longer-term investors from those who panic and redeem.”
Darcy Bradbury, a spokeswoman for D.E. Shaw, and Steve Bruce, a Farallon spokesman, declined to comment.
Industry assets peaked at $1.9 trillion in June, data compiled by Chicago-based Hedge Fund Research Inc. show. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.
The gate on D.E. Shaw’s Oculus fund was triggered after the company received redemption requests for more than 8 percent of assets, said the people, who asked not to be identified because the information is private. The fund, which tries to profit from global economic trends, is up about 10 percent this year, compared with the average 16.4 percent decline for the industry through October, Hedge Fund Research reported.
Investors asked to redeem more than 6 percent of D.E. Shaw’s Composite fund, which pursues multiple investment strategies and has lost 4 percent.
Even hedge funds that are outperforming peers have been hit by redemptions because they are a more ready source for cash for investors. Shaw, 57, started his firm in 1988 and has 1,600 employees worldwide.
First Losing Year
Farallon, founded by Thomas Steyer, told investors in a letter that Farallon Capital Institutional Partners LP plans to resume redemptions as early as January. Meanwhile, they won’t be charged management or incentive fees. They will pay expenses such as legal and accounting fees, according to the letter, which was posted yesterday on the Web site dealbreaker.com.
The Farallon fund fell 23.8 percent through October, and is headed for the first annual loss in its 22-year history. Steyer, 51, invests in assets from stocks to distressed debt and real estate. His main fund climbed at an average annual rate of 14.6 percent for the past 22 years, compared with about 9 percent for the Standard & Poor’s 500 Index.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.