Hedge Funds of the Living Dead

According to the NY Times' Dealbook: four years after the onset of the financial crisis, tens of billions of dollars remain locked up in illiquid “zombie” hedge funds that suspended their redemptions in the darkest days of the meltdown.

Today, these funds produce little if any financial return for their fiduciaries while their administrators continue to coast along, sitting on fund assets without making any effort to liquidate and return their holdings — yet still collecting their management fees. Most investors believe they are powerless to do anything, yet that is not the case.

Recent offshore case law — relevant to tax-exempt institutional investors given their ability to invest funds registered in offshore jurisdictions like the Caymans Islands — recognizes an investor’s right to seek a “just and equitable” windup of a fund when it has gone into lockup mode and ceased to take in new subscriptions or make redemptions. This can be a powerful tool, as public pension fund investors demonstrated recently by forcing the liquidation of a fund run by Fletcher Asset Management after Fletcher was found to be insolvent by a judge in the Caymans….

Wait, wait....there's more at http://dealbook.nytimes.com/2012/06/04/hedge-funds-of-the-living-dead/