Hedge funds working to limit redemptions

By Svea Herbst-Bayliss

BOSTON (Reuters) - Dozens of hedge funds have told investors they cannot get their money back right now as managers try to limit a wave of redemptions to safeguard all their clients' investments -- as well as their own futures.

Only a few months ago, hundreds of the world's estimated 9,000 hedge fund managers made it tough for wealthy investors to put money into their funds by requiring high investment minimums of $1 million (617,500 pounds) or more and charging heavy fees.

Now managers are making it hard for investors to get out.

"Everyone is looking at their gate provisions (mechanisms that limit redemptions) and what rights they have to close their gates," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is a phenomenon that has been occurring for some time and is picking up pace now."

On Thursday, Knight Capital Group's Deephaven Capital Management halted redemptions at two of its hedge funds.

Recently, hedge fund firm Basso Capital told investors it was postponing redemptions. Hedge fund firm Ore Hill Partners imposed a gate in late August.

Before that Drake Capital Management and Pardus Capital Management began restricting clients' departures and Ellington Capital Management stopped allowing investors to exit one of its portfolios last year.

Blocking investors' exits, even if only briefly, was once a highly unusual move that often signaled a hedge fund was on the verge of collapse, managers and investors acknowledged.