As the dust starts to settle on 2008, hedge funds and funds
of funds will start to count the cost of their gating,
suspension and side pocket practices. Once the gates and
suspensions are lifted, many hedge funds may find their assets
flowing out for good.
Side pockets are even trickier to assess and few are clear
on the long-term implications. Those that charge fees on side
pocketed investments will need to be very clear to the
investors about why this is the case. That said, a number of
private equity investors are showing interest in buying the
side pockets of some funds.
The true value, however, will depend on what is in the side
pocket - namely, a long lock-up trade in a fund that now has
shorter liquidity terms or toxic assets waiting for litigation
to force clawbacks and other forms of asset retrieval.
At a fund of hedge...