Reuters is reporting that a 2.3 billion dollar Texas fund will be satisfying redemption requests in installments not to exceed 9 months from the redemption date. The Highland Crusader Fund, managed by SEC registered investment adviser Highland Capital Management, reportedly used the highly unusual move in order to avoid a fire sale of the firm’s illiquid assets. The fund invested in distressed assets.
There are many legal ways that funds can find ways to halt or slow redemptions. Generally funds’ legal documents are drafted to allow the management company the ultimate flexibility to slow or halt redemptions in certain instances. One clear cut way is through a hedge fund gate. Another way is through a general catch all provision which allows the manager to halt redemptions in certain “emergency” circumstances.
Last year this issue came to the forefront as many investors in certain funds rushed for the exit doors. The hedge funds halted redemptions because of the market turmoil and investors were not happy. It remains to be seen whether investors moving into the hedge fund space will pushback on these manager-friendly provisions.