Hedge Fund Uses Dutch Auction To Handle Wind-Down - Report

Tom Burroughes

10 February 2009

Hedge fundGoldenTree Asset Management is hiring investment bank Credit Suisse to oversee an auction of shares in its flagship fund in what is known on Wall Street as a “Dutch auction”, according to the New York Post.

Some ten per cent of the redeeming shareholders - or 25 per cent to 30 per cent of the fund - participated in the auction, which started last week and 90 per cent of them have successfully sold their shares, the paper said, citing a person close to the fund.

GoldenTree is following in the footsteps of Plainfield Asset Management, which also used Credit Suisse, the paper said, and by matching sellers with buyers is a way to give investors an exit without the fund having to sell assets at deep discount prices.

The Dutch auction allows a company to monitor demand for the shares before the offering.

The use of such techniques to unwind hedge fund investments comes at a time when scores of funds, hit by losses after the worst performance year on record, have sought to halt or severely limit redemptions by the use of longer notice periods, or stringent gate provisions capping how much money investors can pull out.