Paul Tudor Jones' Investment has temporarily suspended redemptions from the $10bn BVI Global Fund

The Contagion effect of the financial crisis now starts to force hedge funds to collapse. According to Reuters yesterday, Hedge-fund pioneer Paul Tudor Jones' Tudor Investment has temporarily suspended redemptions from the $10 billion (6.7 billion pound) BVI Global Fund as it splits the hedge fund into two.

The average of hedge funds are on track for the worst performing on record as deleveraging continues roll over the markets and investors are strapped for cash they pull money out of hedge funds. Hedge funds severe an average losses above 20% this year.

Here is from Bloomberg:

Tudor is proposing to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, Jones said in a Nov. 28 letter to investors. BVI Global, the flagship fund Tudor started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Investors asked to pull 14 percent of their money from BVI Global as it lost 5 percent this year through November, according to the letter. That compared with an 18 percent loss through October of the Multi-Strategy Index compiled by Hedge Fund Research Inc.

“The few hedge funds that have liquidity, cash and have done well are the only source of money for investors at the moment,” said Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd.

Tudor won’t charge investors a performance fee until the Legacy assets exceed the high watermark, or peak value, of the BVI Global fund. The firm would sell off the assets in Legacy next year and return money to clients, who will be charged a performance fee of 1.5 percent instead of the industry standard of 2 percent. Redemptions for BVI Global will be suspended until March 31.

The hedge-fund industry may shrink as much as 45 percent by the end of this month to $1.1 trillion from its peak of $1.9 trillion in June because of investor redemptions and market losses, Morgan Stanley analyst Huw van Steenis said in a Nov. 24 report.

Hedge funds have posted losses averaging 22 percent this year through Nov. 24, according to Chicago-based Hedge Fund Research’s HFRX Global Hedge Fund Index. Investors such as pension funds and university endowments are pulling their holdings from hedge funds after they “over-committed” to private-equity investments, van Steenis said.

According to Empirical Research Partners, total Investor’s redemptions from hedge funds and mutual funds are expected could reach about US$1 trillion (€ 800 billion) by the end of this year.

On November 13, George Soros said Hedge funds will be "decimated" by the current financial crisis, and forced to shrink their portfolios by 50-75 %.

Related Posts :

1. Total redemptions could reach about US$1 trillion by the end of this year
2. George Soros: 50–75 % of hedge funds will disappear in the coming months (Update 1)

Sources :

1. Reuters: Tudor's BVI Global Fund halts withdrawals, December 1, 2008 9:07 am EST
2. Bloomberg: Tudor’s BVI Halts Withdrawals, Plans Hedge-Fund Split (Update3), December 1, 2008 14:31 EST

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