By Svea Herbst-Bayliss
BOSTON (Reuters) - Luxor Capital, a $3.8 billion hedge fund that has been losing money for months, said on Monday it will not be returning exiting investors cash in full, keeping a portion locked up until the investments can be sold.
Instead of returning all exiting clients' assets in cash, part of the investments will be held in a so-called special purpose vehicle, Luxor's founder, Christian Leone, wrote in a letter seen by Reuters.
The announcement comes before a critical March 31 redemption deadline and aims to keep the fund from having to stage a firesale to raise cash in order to meet redemption requests. The plan also aims to treat all investors "fairly," the letter said.
"For those investors in the Fund that have submitted withdrawal requests for March 31, 2016 and for subsequent withdrawal dates, we will transfer a pro rata share of the applicable assets into a special purpose vehicle (SPV)," Leone wrote.
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Clients who asked to get their money out on April 1 and those who are asking to pull out on July 1 will receive roughly 88 percent of their money back in cash but 12 percent will be allocated to the SPV, the letter said.
Special purpose vehicles and side pockets are permitted at hedge funds but they are often viewed as a last resort that sour investors, and they have not been widely used since the 2008 financial crisis when many hedge funds posted heavy losses.
(Reporting by Svea Herbst-Bayliss; Editing by Tom Brown)
