Schemes still hurting from post-Lehmans hedge fund 'gating'

A number of strategies invested in illiquid assets like private equity saw investors rushing en masse to withdraw their cash in the 2008 market crash were forced to close to withdrawals until the underlying assets could be sold.

As the portfolios were liquidated, investors received money back in tranches, a process known as gating.

But alternative asset specialists have told PW this process is still going on for a number of hedge funds, many of whose clients are UK schemes.

Michael Hart, business development chief at alternative portfolio manager and adviser Sciens Capital Management, said he is aware of two schemes locked in hedge funds since 2008 who received their last payments – of around £250m between them – this month.

“You are looking at billions of pounds locked up in this way, it highlights the importance of liquidity more than anything else,” he added.

Insight Investment head of multi-asset Mike Pingerra claimed the high volumes of money still being withheld from schemes “shouldn’t come as a surprise”.

He said: “In simple terms, liquidity hasn’t returned to a number of areas, so it’s perfectly reasonable to assume this is still going on three years on.

“The crisis that started three years ago hasn’t ended. Ask yourself, ‘has normality returned to the liquid markets?’ the answer’s ‘no’.”

But he added the underlying illiquid assets still have value, even if schemes cannot access it immediately, and the gated money “isn’t necessarily invested in a bad place”.