GLOBAL - The rebound in market liquidity since the credit crunch has spelled good news for some pension funds locked into hedge funds during the crisis, as some prominent funds have returned cash to investors sometimes years earlier than expected.
From September 2008, many pensions were stuck in funds as evaporating liquidity led many to halt withdrawals. By the end of 2008, Credit Suisse estimated, 25% of funds halted redemptions. Investors wanting to exit were put in ‘wind-down' share classes, and told the wait for the manager to liquidate assets at reasonable prices could be years.
By September last year, 9% of funds were still not paying out all redeemers.
One London-based fund of funds manager said: "In January last year managers were saying it could take three or five years in some cases to liquidate assets...as markets recovered. We were going to have to wait. But in some cases markets have returned to normality so quickly, and the world is awash with so much liquidity, they are able to liquidate the assets in nine months and return cash."
Data providers Credit Suisse / Tremont estimate 58% of fund assets that became "impaired" in the crisis - or US$102bn worth - are liquid again, although a further $72bn are still defined as illiquid.
As normality returned to the convertible bond markets since June 2009, Ferox Capital Management, which gated its flagship early last year and warned investors they would wait to early 2010 to retrieve cash, sold assets and returned cash to redeemers already.
A source close to Ferox said: "Liquidity and markets improved substantially and we were able to sell the assets at limited price impact and return cash much earlier than envisaged." The market recovered so strongly, even withdrawing investors made 20% during the liquidation process. Continuing investors made about 50%, the source added.
BlueCrest Capital Management, which declined to comment, has done so for redeemers from its Strategic portfolio, a person familiar with the situation said.
Alexandre Col, manager of the fund of hedge funds at Switzerland's Banque Privee Edmond de Rothschild, said his fund of funds received most of the money back from a handful of funds that restricted repayments in the crunch, though "one or two names originally told us [it would take] three to five years."
He added hedge funds can sell assets, to rivals if not in public markets, to repay investors. "It's just a question of what price you get. It may be far from what investors expect, but the question then is, who decides what to do?"
Col said, because Rothschild met all redemption requests it received, it was not under pressure to force investee funds to pay out immediately.
"Getting our money back immediately is not a question of life or death, and from the manager's point of view I can now be convinced to be patient.
"A manager could convince me, for interesting investments, to wait for three years. The worst case is when a manager does not pay back assets because he doesn't want to, and he keeps earning fees on them. It can be very difficult sometimes to force managers to do something they do not want to do, even if shareholders come together to try."
This week's edition of Professional Pensions is out now.
Ben Gunnee reflects on 2018 and talks about the Fiduciary Management trends to keep an eye on in 2019
Lloyds Banking Group secured 630,000 new pension customers last year, according to its 2018 annual results.
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.