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Thursday, September 3, 2009

Liquidity Risk In Action

FT Today (my bolds)

Cerberus to bar withdrawals from two funds
By Francesco Guerrera in New York and Sam Jones in London
Published: September 3 2009

Cerberus, the investment group, is barring investors in two new hedge funds from withdrawing money for three years in an effort to avoid a repeat of the large outflows that followed its lossmaking purchases of Chrysler and GMAC, the group's executives said.

The move to introduce a three-year "lock-up" is rare among hedge funds and could pave the way for other managers to follow suit.

Hedge funds typically offer investors the chance to withdraw money every few months - a feature that contrasts with alternative asset classes such as private equity that require multi-year lock-ups.

But after suffering more than $500bn in redemptions in the past year, hedge funds' interest in longer-term investment structures - often accompanied by lower annual fees - is growing. They are keen to avoid fire sales when investors want out, while the latter are clamouring for a better alignment of their long-term goals with hedge fund managers' rewards.

Cerberus executives said the lock-up would apply to two multibillion-dollar funds to be raised later this year specialising in distressed investments.

The funds, Cerberus Partners II and Cerberus International II, are successors to two vehicles that were hit by redemption requests as the financial crisis struck and Cerberus's highprofile investments soure

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