There are many teachable moments in the present financial distress. For one, it should be noted that long-always funds and managers did not stop accepting new client money nor piling it into recklessly priced assets in the last few years, but now that prices have begun plummeting they are decrying ‘irrational markets’ and, where possible, freezing redemptions to “protect” their fees “all of the Fund’s investors”. Classic!
See WSJ Credit Hedge Fund suspends redemptions in time of market stress:
Hedge fund EJF Capital LLC told clients it was suspending redemptions from one of its funds for the foreseeable future because it didn’t want to be a forced seller in what it called “dysfunctional” credit markets.
The $7 billion EJF, founded by Emanuel “Manny” Friedman, told clients in a letter Friday it was preventing investors from withdrawing their money from its Debt Opportunities Fund. That fund managed $2.5 billion at the end of February. While the fund received redemption requests totaling only 6% of its assets under management for March 31, the letter said, it wanted to “protect all of the Fund’s investors by not selling assets into a nonfunctioning market.”
The fund will reassess the suspension quarterly, the letter said, adding it was unlikely to be lifted in time for June redemptions because of the advance notice clients are required to give.
…Several investors said they were bracing for additional managers in structured credit to make moves limiting clients’ ability to get back their own cash. One fund executive described the dynamic as a “death spiral” where margin calls were causing forced selling, which in turn was causing additional margin calls and more forced sales.
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