RAB Capital will this month attempt to prevent investors from pulling cash out of its flagship Special Situations hedge fund, which has lost $1bn (£569m) this year, offering reduced fees if they lock in for three years. Should investors reject the move, the company sees little option but to liquidate much of the fund, it warned yesterday.
RAB, the Alternative Investment Market-listed hedge fund group, yesterday sent its proposals to the majority of investors in its Special Situations fund, asking them to commit until October 2011, rather than exiting at the original redemption date in about three weeks.
"The background to the proposal includes a very weak market for early-stage natural resources and other development stocks, and poor liquidity for both the companies in which the Special Situations strategy is invested," it said. One of the strategy's highest-profile losses came from its investment in Northern Rock.
The lock-in covers feeder funds RAB Special Situations Fund Ltd and RAB Special Sits, which account for more than 90 per cent of the $923m fund, which is now worth less than half the $2bn at which it was valued in December.
In return, the fund has offered to halve its management fees to 1 per cent a year, and performance fees from 20 to 15 per cent.
RAB said it had moved to secure the "long-term stability" of the flagship fund and warned that, if investors fail to agree, "a liquidation of the feeders would be the only course of action resulting in an equitable treatment for all investors".
Investors will vote on the final decision on 29 September, with RAB saying yesterday "a number of major investors in the strategy have indicated their support".
Katrina Preston, an analyst at Landsbanki, said: "A number of investors are major shareholders in RAB, complicating their decision, but we think it could prove a hard sell."
The Special Situations fund has slumped by almost half this year, last week prompting the group chief executive, Philip Richards, to quit the top job to concentrate on investment performance. Mr Richards said yesterday: "We are very disappointed with the performance of Special Situations in 2008 and greatly regret the impact that the performance will have on investors."Reuse content