Despite the best efforts of its management, the redemption crisis at
Cerberus Capital Management has in fact taken a turn for the worse, according to FinAlternatives.

Clients of the alternative investments firm want to withdraw almost three-quarters of the firm’s hedge fund assets, the publication said.

The news contrasts with what has been generally a strong year for hedge funds, which have on average recovered strongly since the start of this year. Since January, the Hedge Fund Research HFRX snapshot of returns shows returns of 7.6 per cent, for example.

Investors have filed redemption requests for some $5.5 billion, or 71 per cent of its hedge fund assets, despite the unpalatable terms offered by the New York-based firm.

Cerberus, whose flagship hedge fund plummeted 24.5 per cent last year, losing heavily on wrong-way bets on Chrysler and GMAC, had offered clients two choices: move their money to a new fund, Cerberus Partners II, in exchange for a break on fees, or move their assets into a holding company that will liquidate the investments over the next four years.

But Cerberus founder Steven Feinberg made a last-ditch effort to hold onto at least half of the funds’ assets, personally calling clients to inform them of the level of redemption requests. But the firm couldn’t offer investors the liquidity they demanded.

“Unfortunately, a number of our LPs [limited partners] have indicated that they cannot invest in Cerberus Partners II LP without quarterly liquidity,” Mr Feinberg and co-founder William Richter wrote to investors last week.

“In our view, given the current general illiquidity in the distressed markets, it would be practically impossible for a distressed investment fund to provide quarterly liquidity for 100 per cent of its capital.”