Hedge Fund Reader : Longer Lock-ins in Hedge Funds

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March 31, 2006

Longer Lock-ins in Hedge Funds

With each passing day, the hedge funds industry is getting around investors by exerting their
requirements. The distinguishing factor or as you would say the typical boundary that existed between 'private equity' and hedge funds is now slowly but surely getting eroded and blurred by the new developments in the whole hedge funds scenario. Industry experts take is that each and every day brings about a sublime change that further blurs the boundaries between private equity and hedge funds.

The fact is that hedge funds are pressing on for more illiquid terms on investors and also seeking returns in the non-public universe. Also the fact is that the conventional and traditional private equity behemoths such as Kohlberg Kravis Roberts & Co. and Blackstone are rolling up hedge funds.

Some are already in the process of dedicating a small, segregated portion of their multi-strategy hedge fund in to private equity or illiquid investments. Well this might not be entirely true but the
buzz sure is in the peg's favour. A growing trend nowadays seems to be the plans around allocation of a portion of hedge fund capital to private equity investments. By imposing longer lock-up terms on investors in order to invest in illiquid assets reflects the same trend.

However, not all hedge funds operating under the sun can expect to exert such kind of pressure on its investors, who by the way are typically large and wealthy investors or even institutional investors. Thus it is only the group of elite hedge funds who can afford to pull something like this.

As a thumb rule, if and when hedge funds want to lock up money for a longish tenure, it is better to do it at the launch stage. As changes in the management agreement of any nature are viewed with lots of unease by the investor community.

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March 31, 2006 in Research | Permalink