Magnetar Said to Limit Fund Withdrawals After Losses (Update1)(Zz)

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aaFjNjgdJA0k&refer=home#

Magnetar Said to Limit Fund Withdrawals After Losses (Update1)


By Saijel Kishan

Dec. 22 (Bloomberg) -- Magnetar Capital LLC, the $8 billion hedge-fund firm co-run by former Citadel Investment Group LLC trader Alec Litowitz, limited withdrawals from its biggest fund after it lost 30 percent this year through November, according to two people familiar with the fund.

The restrictions, known as gates, were triggered after clients sought to pull more than 15 percent of their money from the firm’s $4.8 billion multistrategy fund, said the people, who asked not to be identified because the information is private.

Hedge funds including D.E. Shaw & Co. LP and Farallon Capital Management LLC this month imposed gates so they wouldn’t be forced to raise cash by liquidating assets at distressed prices. Magnetar, based in Evanston, Illinois, told clients who asked for redemptions by Dec. 31 that they will get 10 percent of their requests in cash and 5 percent in shares of its two credit funds, the people said.

“I wouldn’t be surprised if a whole host of funds do this between now and the end of the year as they become aware of the exact liquidity requirements placed on them,” said Phil Irvine, co-founder of London-based PiRho Investment Consulting Ltd., which advises clients on hedge funds.

Litowitz declined to comment.

Magnetar clients can pull out cash every quarter with 90 days notice, meaning year-end requests were due by Sept. 30. The firm notified investors that the gates were imposed in a Dec. 18 letter.

‘Open Dialogue’

“I would’ve thought that it’s in the best interests of both investors and the fund for the manager to have given them earlier notice of this happening,” Irvine said. “Some investors may have taken the assumption that they were going to get their money back and now they won’t. Funds need to maintain an open dialogue.”

Magnetar was started in 2005 by Litowitz, the former global head of equities at Chicago-based Citadel, and Ross Laser, former president of Glenwood Capital Partners.

Multistrategy funds, which trade assets including stocks, bonds and commodities, lost 20.5 percent this year through November, data compiled by Hedge Fund Research Inc. show. Hedge funds globally have lost 18 percent this year, according to the Chicago-based firm.

Hedge funds are finishing their worst year on record amid slumping stock and commodity markets and a freeze on credit. Industry assets peaked at $1.9 trillion in June, according to Hedge Fund Research. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.

Restrictions

As of October, 18 percent of the hedge-fund industry’s assets, or about $300 billion, were subject to withdrawal restrictions, according to GFIA Pte, a Singapore-based hedge-fund consulting firm.

Citadel this month suspended redemptions from its two biggest funds after investors sought to take out 12 percent of assets. The $13 billion hedge-fund firm is led by Kenneth Griffin.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net;

Last Updated: December 22, 2008 15:32 EST