Hedge Funds Lockups
Investors Strongly Favor Hedge Funds with Short Lockups
Hedge-fund customers plan to allocate 90 percent of new investments in 2011 to firms that agree not to tie up money for more than one year, according to a Goldman Sachs Group Inc. (GS) survey released today. Funds that rely on longer lockup periods so they can buy illiquid assets such as distressed debt will have a harder time attracting cash, said David Solomon, co-head of capital introductions at the New York-based bank.
“Investors have more choices of liquidity terms than they did before the financial crisis,” Solomon said in an interview. “Consequently, hedge funds with less liquid terms are pursuing a diminishing pool of capital.”
The demand for short lockups is a legacy of the 2008 financial crisis, when some hedge funds restricted withdrawals to avoid having to sell assets at a loss. Investors pulled a record $154.4 billion from hedge funds in 2008, according to data from Hedge Fund Research Inc. of Chicago.
Caxton, a New York-based hedge fund with $11 billion in assets, places no limits on how long clients must keep their initial investment with the firm.