Cerberus to Bar Withdrawals From Two Funds

The FT reports that Cerberus, the three-headed dog-like fund vehicle that loves to buy auto companies right before they go bankrupt, will introduce a three-year lock-up on two new hedge funds that it plans to raise later this year. The funny thing is that the only difference between the new funds and Cerberus' old funds is that this time investors actually know about the lock-up restrictions beforehand. You see, last December investors were denied access to their funds when Cerberus halted redemptions in response to a frenzy of requests for withdrawals from their clients. No doubt investors, who were entitled to withdraw funds based on a previously agreed to redemption schedule, were pissed off when their withdrawal requests were denied so that Cerberus could avoid having to liquidate assets at fire-sale (aka "market") prices. The fund has since relented and will allow investors controlling $4.77 billion, or 60% of the fund's total assets to have their money back, sort of. The funds will be placed in a wind-down vehicle and money will be returned over several years. I believe this is what is called an involuntary lock-up.

According to the FT article, Cerberus abhors the limelight and is really distressed over all the publicity, mostly negative, it has received in the past couple of years and has vowed to avoid high profile deals going forward. COO Mark Neporent states that "We were naive in thinking that buying Chrysler would not have been high profile. But we have always tried to avoid publicity. We are happy making money for our investors and leaving the headlines to others." As if the problem with its investments was that they were high profile, instead of just really dumb money-losing investments. Because piling tons of debt onto both an auto company and an auto finance company with uncompetitive cost structures, in the most cyclical of industries, at the peak of a credit cycle wasn't incredibly stupid? It was just too high profile. Right. If Cerberus manages to raise multiple billions later this year for its new hedge funds, I'll be shocked. Why anyone would give these clowns their money to manage is a mystery.