Longer Hedge Fund Lock-Up Periods

Hedge Fund Lock-Up Periods

Interesting story came out in Reuters today about how Cerberus Capital Management is now putting three year lock up periods on all new funds. While investors have been demanding more flexibility and transparency I believe hedge funds are trying to balance liquidity vs. gating clauses. If you are going to have to enact a gating clause to stop assets from leaving a few of your funds you are better off putting a longer 2-5 year lock-up period in place perhaps so at least investors know what they are getting into.

Cerberus Capital Management LP CBS.UL said on Wednesday it will prohibit investors in new hedge funds from withdrawing money for three years.

Earlier on Wednesday, the Financial Times reported Cerberus planned to bar withdrawals in two new funds to prevent the outflows that followed its loss-making acquisitions of carmaker Chrysler and financial services company GMAC.

"The three-year lock-up period will apply to all new hedge funds," Timothy Price, managing director and spokesman for Cerberus, said in a statement to Reuters.

On Tuesday, Cerberus dismissed market speculation that some of its hedge funds were in danger of default. source

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