Dozens of hedge funds that once set the price of entry at $1 million to limit the number of investors participating in their funds are now trying to limit redemptions to keep their funds afloat, reports Reuters.
Managers are looking at so-called “gate provisions” that limit withdrawals in an effort to stop the flood of capital pouring out the door. Some funds have halted redemptions completely. Managers argue that it is their fiduciary duty to slow redemptions and thus avoid having to unload securities at fire-sale prices, which would further damage the returns of those who wish to remain invested in their funds.
Many industry experts already blame hedge funds for accelerating stock market declines because of them having to dump huge blocks of shares to boost their funds’ liquidity. According to Chicago-based Hedge Fund Research Inc., the average hedge fund has lost 20% this year, prompting wealthy individuals and institutional investors to yank out a record amount of money. More redemptions are expected until November 15th, which is the deadline to get funds out by year-end for tax purposes.