Hedge fund gates now below 5% of industry assets, says Tullett Prebon

Hedge funds have gates on about $60bn of investors’ money, say fund brokers Tullett Prebon. Though large in absolute terms, the amount is 3.6% of industry assets and far below the 35% impaired as the financial crisis peaked.

RAB Capital’s flagship Special Situations fund will return about $370m after a three-year voluntary lock opens in October, the company says, while many other managers pay out investors in previously gated funds.

Gating is the practice where a manager puts limits on how much an investor can withdraw from their funds. Sometimes it is a minor proportion of total investments, other times a complete ban.

Neil Campbell, Tullett Prebon’s head of alternative investments, said gates opening is “good for the industry and investors, and perhaps good for some mangers who may be recipients of that money.”

David Butler, founding partner of business advisors Kinetic Partners, said removing gates on prominent funds would not “truly mark a turning point for the industry, unless there is clear evidence of the alignment of interests of investors and managers”.

The locking of cash showed investors they allocate to humans, not just impersonal hedge portfolios, said Lisa Fridman (pictured), associate director at hedge fund investor PAAMCO.

“Hedge funds are people as well as investment strategies and it is very important to be able to trust those people to treat investors fairly in very unfavourable circumstances. The experiences bring in datasets for investors to see how managers behave, and whether or not they ‘do the right thing’.”

Daniel Mannix, business development head at London hedge fund manager RWC Partners, which did not gate funds, said: “Ultimately, the only way to protect a fund is to make sure that assets managed and the liquidity you offer match in extreme times.

“As fiduciary we do not have the right to gate assets, we look after them on behalf of other people. It is about being a fiduciary and being responsible for looking after other people’s money, and educating investors how we intend to invest it.”

Fridman added, while investors are evaluating managers’ actions, managers are assessing their investor base, too.

“It is important for hedge funds as businesses to understand the true investment goals and horizons of their underlying investors. In the past some funds were just happy to raise assets, but now there is more emphasis on the stability of the assets they have raised.”

RWC’s Mannix added: “It is not just about what type of investors you have, it is about who their underlying clients are, at what point they entered the strategy and what their expectations are.”

Thomas Deinet from the Hedge Fund Standards Board, says when it comes to impairing assets, “the focus lies on fair treatment of investors”. HFSB has done extensive work on corporate governance around gating assets already.

David Walker

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