Tudor Investment Corp., the hedge fund run by legendary trader Paul Tudor Jones, has put a halt on withdrawals, as it seeks to rectify its problems by splitting into two funds. The idea: Create a separate fund for the illiquid investments (e.g. certain bonds in emerging markets), while leaving a separate, liquid fund that can be withdrawn from.
Other funds have tried the same move, which needs investor approval, and all in all, Tudor has done fairly well, losing only 5% through November. That’s a lot better than many hedge funds, though apparently it’s a bit worse than the funds inits categories. Either way, redemptions coming to 14% have forced the company’s hand on this move.
The split may get Tudor through the onslaught of redemptions now, but down the road, investors who pull money from the liquid fund will find themselves doubled-down on illiquid assets (very familiar). And if things don’t improve, Tudor will face redemptions on fund entirely composed of illiquid securities.
FT Alphaville: This feels serious – and not just because of the size of Paul Tudor Jones’ flagship $10bn Tudor BV fund.
The real point is that Tudor is down just 5 per cent year-to-date, albeit 12 per cent from the high water mark in June. And yet there is still a need to stop clients withdrawing funds and organise a restructuring, where illiquid assets will be placed in a new fund with lower fees.
If the man who famously predicted the crash of 87 is having to take such drastic action now, what is the experience elsewhere?