Money managers under the microscope
RAB Capital’s struggling Special Situations fund looks to have recorded a positive return in 2009, but after a bumper year for the industry it is still paying the price for the investments it made in illiquid assets before the credit crisis.
Having seen their investment lose around half its value in 2008 while much of the fund’s money was in hard-to-sell assets, the fund’s investors agreed in autumn ’08 to lock up their money for 3 years in return for a cut in fees.
Today’s update from the listed feeder fund shows a gain of 6.5 pct for the first 11 months of 2009, helped by a strong November.
However, the update also shows an interesting divergence in performance, which seems to reflect the demand by investors across the board for liquid assets, whilst many still shun illiquid holdings.
from Global Investing:
Imagine you're an institutional investor holding a great deal more illiquid, price-impaired assets than you're comfortable with. Do you a) hold on to them and pray that the price rebounds, or b) sell now and take a loss, before things get even worse?
This is the dilemma facing institutional investors who went just that little bit too far out along the risk curve in search of extra yield. According to Tom Graf, who heads BNY Mellon's global workout solutions business, clients have to-date largely preferred to wait for markets to rebound, and in some cases this could well make sense.