Hedge Fund Redemption 101

The following quote was taken from a hedge fund manager letter sent back in September 21, 1998. Yes, ten years ago.

“The Board of Directors of (our fund)…made proposals to invest additional capital…has agreed to reduce the management fee in (our fund) from 2.4% per annum to 1.5%…”

“Our fund must also understand whether or not clients who have sent in provisional redemption notices actually wish to redeem as it makes it more difficult to assess that outflow of funds without this information.”

“…has decided to suspend redemptions of the shares of the Fund in accordance with Section VI…”

How the industry forgets lessons from our past. The letter first demonstrates the charitable side of the managment team by reducing a rather high management fee.

In the second paragraph they appear to believe that investors had no actual intention of redeeming and hope that with the "offered fee reduction" in the first paragraph investors would remain invested with the fund.

All of the above is then discarded with the statement announcing the the fund has suspended redemptions...

A decade later we discover that there remains a very long road for the hedge fund industry to implement best practices...