Australian based Fund of Funds HFA Asset Management has suspended redemptions from a number of its underlying funds including the HFA Diversified Investment Fund, and the HFA Octane and Octane Series 2 Fund, effective December 22nd.
Citing deteriorating liquidity in the underlying funds in which it invests, HFA also announced limited liquidity in their US based Lighthouse Diversified Fund, by establishing a special purpose vehicle (commonly referred to as a "side pocket") to hold and isolate the redemptions in illiquid investments until such time as they are liquidated.
HFA are not the first, and are unlikely to be the last Fund of Funds to halt or limit redemptions due to lack of liquidity in underlying funds. In October Everest Babcock and Brown announced that it would freeze redemptions in their Income Fund, and earlier this month Macquarie announced a halt to redemptions in their Equinox Series of funds. Prior to this there were wide ranging redemption freezes in many Australian based mortgage funds.
To date single manager Australian Funds have avoided freezing redemptions in spite of being subjected to significant and widespread redemptions from investors, particularly Fund of Funds, who in turn have been subjected to a wave of redemptions from their own investors. However, the redemptions to date are having a domino effect as investors redeem from otherwise well performing funds due to the lack of liquidity in others. The liquidity issues are also primarily based on the larger overseas managers, although the flow on effect has certainly reached Australian funds and their investors.
