Hedge Funds Prepare for Mass Redemption

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WSJ(8/15) Investors Mull How To Get Out Of Hedge Funds

(From THE WALL STREET JOURNAL)
By Jeff D. Opdyke and Eleanor Laise

......Investors who successfully withdraw money from a struggling hedge fund may still be at risk. If a hedge fund fails, in some cases a bankruptcy trustee or other investors may sue investors who have already redeemed money and try to force them to pay that money back into the fund, say Nixon Peabody's Mr. Mungovan and his co-chair of the firm's alternative investments litigation practice, Jonathan Sablone.

The trustee could argue that the hedge fund didn't value its assets correctly and that investors withdrew more money than they were entitled to, the lawyers say. This concept "may well apply to some of the fund failures we're seeing right now," because some funds involved with, say, subprime-mortgage-related securities may have a hard time valuing their assets and could wind up in bankruptcy, Mr. Mungovan says. It's "the Hotel California" syndrome, he says. "You can check out anytime you like, but you can never leave."

(END) Dow Jones Newswires