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By Benedicte Gravrand, Opalesque London: In light of the recent months’ wave of investor redemptions which were met by fences of redemption freezes and lock-ups from many of the hedge fund managers – most often against lower fees - several industry commentators agree that hedge funds should better align their liquidity with that of underlying assets, that forced redemptions will undermine investors’ confidence, and that those who have not done so, should introduce hurdle rates.

Hedge fund themselves are facing a liquidity drought and forced asset selling, especially the highly leveraged ones. HFR reported that investors had withdrawn over $40 billion (9%) from hedge funds in the month of October which, in addition to $115 billion in performance-based asset losses, reducing the industry capital base by $155 billion: global hedge funds’ AUM declined to $1.56 trillion and the HFRI Fund Weighted Composite Index declined more than 16% YTD through October.

On redemptions freezes, lock-ups and lack of liquidity John Godden, founder of the London advisory firm IGS Group and industry commentator, explained that it was sometimes necessary to keep investor money that would otherwise be redeemed if the assets held by the fund were temporarily illiquid or had a maturity beyond a short timeframe. Also, in the case where assets are held up due to abnormal events (the fall of Lehman for instance) then there is no choice but to ......................

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