Basis Capital seeks Court Assistance for Redemptions

More trouble for Basis Capital. Yield Alpha Fund’s Sister, Basis Aus-Rim Diversified Fund, has also lost about half its value since the credit crunch began. Basis recently announced they will be seeking help from the courts regarding redemptions.

In a letter to investors dated January 9, 2008, Basis Capital Funds Management Ltd. said “Identifying appropriate representatives of the various classes of investors and obtaining their consent” to its plan for dealing with redemption requests “has been a time-consuming process.”

It assured investors that “Basis Capital and its legal advisers have been working hard to identify and reach an expeditious outcome.”

Basis Capital seems to be trying to reclassify the redemptions from investors back in June (the first round of big redemptions) as creditors of the fund. Basis is trying to balance the interests of the old redemptions versus new redemptions from investors who stuck with the fund through the storm. I am not familiar with Australian Law on the issue so I cannot accurately comment on the practical difference between being a creditor and a redeemer. But the issue is that the fund is struggling defining what priority the redemptions have over each other, i.e. who gets paid first.

This highlights another important thing for hedge funds to consider. When formulating your policy on redemptions, a fund needs to have clear redemption procedures. Specific measures including defining a timeline and fund obligations will help give investors more certainty about their potential for repayment.

Sydney Morning Herald
The Australian

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2 Responses to Basis Capital seeks Court Assistance for Redemptions

  1. Ritholtz says:

    There was a parallel case in the USA, with a $400 million hedge fund whose managers embezzled most of the monies; The investors who had taken withdrawals earlier were subsequently sued by those who hadn’t — I believe they may have even partially recovered some money — absurd as that sounds . . .

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