Hedge Fund Redemptions during the Financial Crisis

Preferential withdrawals are being investigated

Another current SEC examination target arose out of the ‘gating’ and suspension of redemptions by hedge fund managers during the financial crisis.

The regulators are concerned about managers giving preferential treatment to favored investors without disclosing such arrangements in advance to other fund investors.

Managers should know that they have a duty of fairness to all of their fund investors, and the SEC considers the granting of a special right (such as favorable liquidity terms) to a preferred fund investor as a disclosable conflict of interest.