Deephaven freezes $1.6 billion hedge fund

In another example of the challenges facing hedge funds as they try to hold off a flood of investor redemption requests, Deephaven Capital Management LLC has frozen its Deephaven Global Multistrategy Fund’s $1.6 billion in assets after investors tried to redeem 30% of their money. The Minnetonka, Minn.-based fund’s chief executive, Colin Smith, said in a letter to investors that the current pace of redemption requests could hurt “both continuing and later redeeming investors,” according to published reports The fund, which has had a 16% average annual return since it opened in 1994, reportedly lost 15% this year through September, and has declined an additional 10% in October. Over the past several weeks, several dozen hedge funds have denied or delayed investor redemption requests, according to published reports. The redemption requests effectively drive down performance by forcing managers to unwind and liquidate positions. For most hedge funds, the only recourse is to try and curb redemptions by whatever means necessary. “Everyone is looking at their gate provisions [mechanisms to limit redemptions] and what rights they have to close those gates,” Timothy Mungovan, a partner at the New York law firm of Nixon Peabody LLP, told Reuters.