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Zombie Hedge Funds

July 31, 2012

Zombie funds are illiquid hedge funds. In late May, early June, the SEC announced interest in these funds. See The Wall Street Journal, “Investor Hazard: ‘Zombie Funds’ ” and Reuters via HuffPo: “Zombie Funds Receiving A ‘Close Look’ From SEC“.

Around the same time, ZombieLaw mentioned an article from June 4th Forbes written by Jake Zamansky, a securities attorney, about these zombie funds: “Investors, Watch Out For Zombies Before Diving Into Hedges“.

zombie jake zamansky

The same day (Jun4) NYTimes DealBook published an article by Jay Eisenhofer and Matthew P. Morris, partners at the law firm Grant & Eisenhofer: “Hedge Funds of the Living Dead”,

zombie jay eisenhofer and zombie matthew morris

explaining:

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.

and

It is estimated that some $50 billion to $60 billion remains locked up in zombie funds, out of the reach of investors.

but

Investors may have historically assumed they were helpless in wrenching capital back from zombie hedge funds. As these recent cases illustrate, that is not necessarily so, however.

More recently, a consulting group, Kinetic Partners, is getting in on that action. As Christine Williamson, senior reporter at Pensions & Investments, wrote on July 23rd: “Kinetic goes ‘zombie’ hunting“:

Kinetic Partners US LLP is getting into the money management business, albeit in a very limited way.

Specifically, Kinetic just entered the business of dismantling illiquid “zombie” private equity and hedge funds, said Geoff Varga, partner and global head of the New York-based firm’s corporate recovery and restructuring practice.

zombie geoff varga

Also of note, another senior reporter at Pensions & Investments, Arleen Jacobius, used the term to refer to private equity way back in January: “Zombie PE funds draining investors’ purses” But the term substantially predates that too. The Wikipedia page for “Zombie Funds” started in October 2007 defining the term as a closed insurance fund.

And a 2008 article in The Economist, “Bungling & Benighted” discussed “Clive Cowdery, a dark knight of British finance” and his firm named Resolution:

zombie clive cowdery

He [Cowdery] made a fortune buying life-insurance books that were closed to new members (known as “zombie funds”) from troubled insurers at low prices, selling the resulting package this year to another insurer, Pearl. But would the approach work for “zombie banks”? Mortgage books are different from closed life funds, whose clients are locked in and risks diminish over time. Closed mortgage books diminish quickly as creditworthy borrowers remortgage elsewhere at cheaper rates and leave behind those who are rejected by other banks.

Recall ZombieLaw on Zombie Banks

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