Here’s the hedge fund equivalent of when Credit Suisse announced it would pay bankers in crap securities rather than cash. GoldenTree Asset management has decided that investors who make redemption requests will simply get the illiquid garbage the fund invested in rather than some market cash equivalent for those assets. It’s kind of a sly way of sidestepping the whole mark-to-market issue, though the fund’s investors are none-too-happy.
FT: GoldenTree, which specialises in investing in complex debt ins-truments, had about $10bn (€7.6bn) under management last year. But losses and redemptions could leave it with half as much if investors made good on withdrawal requests, said a person with direct knowledge of the matter. GoldenTree declined to comment.
In a letter to investors last month, GoldenTree said “withdrawing partners that do not elect to revoke their withdrawal request will receive their proceeds primarily in kind. It is unlikely that any cash will be distributed.”
Obviously, investors are pissed, particularly the ones who don’t have any expertise in trading or valuing these assets. But when there’s no market in said securities, the alternative is no redemption at all — which is what we’ve seen at many funds, who have simply shut the doors on investors looking to withdraw.
Somehow we suspect that many of the same people who called the Credit Suisse move ingenious won’t find this to be so pleasing, but it’s the exact same concept.