" Jan. 20 (Bloomberg) -- Hedge funds’ best year in a decade is giving little comfort to Jason D. Papastavrou.
The founder of New York-based ARIS Capital Management LLC, which has about $250 million invested in hedge funds, is still waiting to get back $155 million from 22 managers that restricted withdrawals in 2008.
“We don’t object to the illiquidity,” Papastavrou said in an interview. “We object to how some managers are abusing the situation and holding investors’ money hostage to generate fees.”
Hedge-fund firms including D.E. Shaw & Co. and Harbinger Capital Partners LLC that froze client assets during the financial crisis have yet to pay back a total of about $77 billion to investors, according to estimates by Credit Suisse Tremont Index LLC, which tracks hedge funds. That’s after the biggest stock-market rebound since the 1930s and a record rally in credit markets revived demand for some assets considered illiquid a year ago.
The market recovery helped managers post returns of 20 percent last year after losing a record 19 percent in 2008, according to Chicago-based Hedge Fund Research Inc. The gains exclude some hard-to-sell assets, such as emerging-markets real estate or aircraft-engine securitizations.
“While I’m sympathetic to managers who weren’t able to sell assets back in October and November 2008 because bids were hard to come by, there are few excuses more than 12 months later,” said Michael Rosen, chief investment officer of Angeles Investment Advisors LLC, a Santa Monica, California-based firm that advises clients on investing in hedge funds.
$1.4 Trillion Industry
At the end of last year, about 5.5 percent of the $1.4 trillion hedge-fund industry’s assets were restricted by managers, compared with 11.6 percent of what was a $1.5 trillion industry at the end of 2008, according to Credit Suisse Tremont Index, a joint venture of Credit Suisse Group AG and Tremont Capital Management Inc.
While some hedge funds don’t want to sell at prices that would harm remaining clients, others are using this as an excuse to retain assets to generate fees and remain in business, said John B. Trammell, chief executive officer of New York-based Cadogan Management LLC."