Investors are trying to pull out $250 million from hedge fund Coatue Management.
However, the hedge fund is not allowing investors to cash out in full.
Sources say Coatue Management is withholding $33 million from client redemptions.
Let’s break it down together.
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Coatue Management withholds millions from investors
The money being held back was invested in private companies according to Bloomberg.
The assets invested in private companies are being withheld by Coatue and placed in a ‘side-pocket’, according to people familiar with the matter.Â
A side pocket is a type of account utilized in hedge funds to segregate riskier or illiquid assets from more liquid investments.
That amount is 13% of the cash being sought by clients, or a total of $33 million.
A spokesman for Philippe Laffont’s New York-based Coatue, which managed about $59 billion as of Dec. 31, declined to comment.
Coatue Management is down 11% this year through March.
Investors are seeking redemptions as Coatue’s performance tanks.
Redemptions are the return of an investor’s security such as a bond or stock.
Side-pockets gained attention during the financial crisis when hedge fund clients sought to redeem hundreds of billions of dollars.
To avoid selling assets at fire sale prices, funds pushed the holdings into stand-alone entities with the aim of selling the assets at higher prices in the future.
In other words, clients aren’t getting this money back until Coatue feels it is safe for them to release its securities.
Will other hedge funds follow?
We’ve seen hedge funds such as Citadel prevent its customers from pulling their investments out earlier this year.
Clients were given an ultimatum.
Stay, or it will be nearly impossible to return.
Citadel had also increased its fees for cashing out.
It seems hedge funds are in a rather tight spot at the moment.
Financial institutions are pulling money out from other financial institutions following market drops.
Citadel pulled $2 million from Gabe Plotkin’s Melvin Capital earlier this year, two hedge funds with overleveraged positions in ‘meme stocks’.
Retail investors have not only caused short sellers billions, but now hedge fund investors are pulling out from these sinking ships.
GameStop caused short sellers to lose almost half a billion dollars the fourth week of March.
This doesn’t take AMC into consideration who also saw gains upwards of 29%.
Hedge funds continue to bet against companies and communities they have no chance against.
For once in history, they’re losing.
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