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...