Two underperforming investment funds recently frozen by French bank BNP Paribas are being restructured in the face of a "significant" number of redemption requests, according to investors in the funds.The "Opportunity" and "Serenity" funds, which are invested in a range of hedge funds and represent $376m in assets, have been entrusted to a new manager and aim to reopen sometime around March, according to investors in the funds.
BNP Paribas Alternative Funds told investors in a letter dated Nov. 26 that the portfolios were being frozen in the face of "significant" withdrawal requests. Honoring them would soak up liquidity at the expense of other shareholders, leaving a chunk of "illiquid" investments that could not easily be sold.
"Given the current and envisaged significant redemption amounts, the board of directors considers that honoring these redemption requests immediately with the liquid assets available would leave the shareholders remaining in the sub-funds with a more important portion of illiquid assets," it said. "The board of directors is currently trying to find the best way to dispose of the illiquid assets of the sub-funds in the best interest of all the shareholders."
A subsequent update told investors the portfolios were being transferred to BNP unit Harewood Asset Management for restructuring and the sale of illiquid assets. The process would take an estimated four months and would allow investors to potentially cash out of the funds quicker in future, it said.
A spokeswoman for BNP denied there was any connection between the decision to freeze the funds and the exit requests. Citing $333m in available liquid assets and total redemption requests of $75m across both funds, she said there was no liquidity issue.
The freeze was simply a technical and administrative measure to ensure a smooth transition of manager, she said. "This is part of the normal life of a fund," she said.
At the end of November, "Opportunity" and "Serenity" were respectively down 5.8 per cent and 2 per cent year-to-date, or below their respective annual performance targets of 3 percentage points and 6 percentage points above the London InterBank Overnight Rateâ??currently at 1.5 percent.
