(August 2, 2013) — Investors may have to wait more than a year to redeem anything more than three quarters of their net assets from the largest US hedge funds, the Securities and Exchange Commission (SEC) has revealed.
Hedge funds with more than $5 billion in assets are compelled to report their liquidity and leverage profiles to the SEC under the recent Dodd Frank Act.
Figures shown to the US Congress last week indicated just 7% of assets held in these funds could be liquidated in one day or less; with fractionally more—9%—available to be sold and returned in one week or less.
A quarter of assets could take a month to be sold, while 43% of assets were estimated to take up to 90 days to be traded back in to the market.
If investors were prepared to wait six months, they should be able to take back 59% of their capital, and within a year some 74% of assets would be expected to be returned.
The rest—26%—investors would have to wait more than a year for, the hedge fund managers told the SEC.
However, the story is not as simple is just asking for the money back. More than half of the funds reported may be subjected to a gate to restrict withdrawals, which may be implemented by a manager or fund governing body.
While more than three quarters—77%–of these funds may be subjected to a total suspension of investor withdrawals or redemptions, the SEC reported hedge fund managers as telling them.
Additional information gathered from a range of hedge funds, including those with smaller asset pools showed total borrowing—which amounts to leverage in the portfolio—had reached $1.06 trillion. This figure was collated from funds with more than $500 million in total assets.
To read the entire report, click here.
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