Citadel Investment Group, enduring its biggest losses since starting in 1990, halted year-end withdrawals from its two biggest funds after investors sought to take out $1.2 billion or 12 per cent of assets.
Withdrawals may resume as early as March 31 for the Kensington and Wellington funds, the Chicago-based firm said in a letter yesterday to clients. The funds, which together manage about $10 billion, have lost 49.5 per cent of their value this year through December 5.
“We have not made this decision lightly,” Citadel founder Kenneth Griffin, 40, wrote. “We recognise how a suspension impacts our investors, especially those with current financial obligations of their own to meet.”
Firms, including Fortress Investment Group and Tudor Investment Corp, also have limited redemptions to avoid dumping securities to raise cash. As of October, 18 per cent of the industry’s assets, or about $300 billion, were subject to withdrawal restrictions, according to Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA. The limits have been imposed by about 5 per cent of managers.
Hedge funds declined 18 per cent on average through November 30, according to data compiled by Chicago-based Hedge Fund Research. That’s the most in a year since the firm began tracking the data in 1990.
Citadel has among the strictest redemption rules. It normally allows clients to take out up to one-sixth of their money quarterly. If redemptions in any quarter exceed 3 per cent of fund assets, investors incur a fee ranging from 5 per cent to 9 per cent. Withdrawals have never before surpassed the limit.
The firm will also absorb “a substantial portion” of the funds’ expenses this year, the letter said. Citadel clients usually pay these charges, which have traditionally amounted to about 3 per cent to 4 per cent of assets.