In his latest missive,
Harch Capital Management
chief
Michael Lewitt
tears into the "Cash for clunkers" economy and makes special mention of such hedge funds as Cerberus that have been or are planning to trap investors in what he calls "The New Roach Motels."
Here's an excerpt from Lewitt's September 1 letter. The full text is available by subscription at
hcmmarketletter.com
.
. . . Mr. Lampert is not the only hedge fund manager turned private equity mogul whose dreams of empire building haven’t worked out as planned. Cerberus Capital Management announced on August 28 that 71 percent of the investors in its two hedge funds had elected to ask for their money back.
That does not mean that they will get their money back anytime soon, however, since much of it is invested in illiquid securities whose value is more a matter of opinion than fact.
According to press reports
, a mere five percent of the requested capital will be returned immediately, and investors may have to wait as long as three or four years to receive the other 95 percent (which may or may not be worth 95 percent before day is done).
Cerberus will be placing those hard-to-value and impossible-to-sell assets in a liquidating trust and lowering its management fee to what it views as a modest 50 basis points while it tries to sell them. Investors should not be charged any fee on a liquidating trust because their funds are being held against their will, but apparently Cerberus believes it is entitled to what is reported to be $28 million in annual fees for doing what it was supposed to do in the first place, give investors back their cash.
Cerberus is also reserving the right to scrap the liquidating trust plan and freeze redemptions for another year (perhaps while charging even higher fees to investors for the privilege of being trapped by the three-headed beast). This Roach Motel has a warning sign hanging on its entrance: “Beware of Dog!”
Some previous AR coverage of Lewitt: