Tudor freezes redemptions on flagship BVI hedge fund

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The Independent Online

One of the world's most prominent hedge fund managers, Paul Tudor Jones, has frozen redemptions from his $10bn (£6.7bn) flagship fund, after investors made a dash for the exits.

The industry veteran is the latest forced into emergency measures to battle the crisis facing the hedge fund sector, something Mr Tudor described in a letter to clients as tacking to "the demands of these tumultuous times".

Investors representing 14 per cent of the Tudor BVI Global fund's assets demanded their money back as it fell 12 per cent from its high water mark in June, brought low by impossible-to-sell credit market investments.

Letting them go would mean BVI would have to sell a proportion of its best, liquid positions to raise cash, leaving the remaining investors with a portfolio of potentially toxic assets.

With a 31 December deadline looming for redemption requests across much of the hedge fund industry, many investors are expected to pull their money out. The industry is on course for its worst performance since at least 1990, and analysts, economists and market players have predicted that it could shrink by a half or more.

Memphis-born Mr Tudor, a former student boxing champion, made his first fortune trading cotton and is best known for predicting the 1987 stock market crash. His BVI fund has earned returns averaging 22 per cent a year.

His proposed solution to the current turmoil may become a model for many established managers. In his letter to investors, he said BVI would split into two, separating the impossible-to-sell credit market investments into a new "legacy" fund that will wind down over time. Most of these assets are corp-orate debt from emerging markets.

The legacy portfolio would represent about 29 per cent of the overall value of Tudor BVI . The remaining, more liquid, assets would then be at the core of the restructured fund.

"Those of you who have visited recently have heard me refer to this return to our trading roots as 'Back to the Future'," Mr Tudor told investors. "While it is a future I am eager to get to, it will require a brief pause of one quarter to accomplish the structural change. I ask investors to pause themselves and to await our materials."