Cerberus Investors Stampede for the Exit

In hindsight, it's easy to surmise that if you go into business with a three-headed dog, you're bound to get bitten eventually.

Perhaps investors in Cerberus Capital Management thought they were buying protection from the three-headed dog, the Greek mythological character for which the firm was named.

But after brutal market declines made worse by Cerberus' fateful bets on companies such as Chrysler and GMAC, the firm's investors can't seem claw their way out of that place fast enough.

Redemption requests from the $2 billion Cerberus Partners LP hedge fund are surging, according to Bloomberg. Finalternatives is a bit less diplomatic with its headline: Cerberus Drowning in Redemption Requests.

How bad is it? So bad, according to a letter to investors from Cerberus founder Stephen Feinberg, that withdrawal requests have continued to pour in even after the firm suspended redemptions last December. The fund fell 16 percent in the year through last November, according to Bloomberg, and it slipped another 3 percent in the first two months of this year.

"The fund's withdrawal requests have increased substantially since the fund suspended withdrawals, partially because investors wanted to reserve their place in line and partially due to individual investors' own liquidity needs," according to the letter.

One option being considered to handle the requests, one Cerberus insider told Bloomberg, is to create a special purpose vehicle for some of the hedge fund's assets in order to pay back antsy investors.

But let's hope those investors aren't counting on seeing this money for immediate liquidity needs. The special purpose fund "would be managed by the general partner until it is fully liquidated, a process which might take several years."

by Megan Barnett