Highland Capital’s Crusader Fund: The Hedge Fund Fallout Begins

Bloomberg covers the demise of Highland’s Crusader fund
, formerly one of the biggest names in the market:

Highland Capital Management LP will close its flagship Highland Crusader Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt, according to a person with knowledge of the decision.

Highland, whose total assets under management has shrunk to about $33 billion from $40 billion in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next three years, said the person, who declined to be named because the decision isn’t public. The hedge funds had combined assets of more than $1.5 billion.

The Dallas Morning News adds that:

Highland said it would sell 20 percent of that fund’s assets during the next six months, and another 20 percent in the following six-month period. It will sell the remaining assets in the next few years.

Crusader first ran into trouble during the summer, as it saw a significant increase in redemptions, or requests from investors who wanted to take their money out.

Highland said then it would honor the requests but would need up to nine months to give investors their money back.

Meanwhile (from Bloomberg, accompanied by a decidedly evil image of Henry Paulson):

U.S. Treasury Secretary Henry Paulson said his plan to inject capital into financial companies is focused on banks and thrifts, indicating unregulated firms such as hedge funds won’t initially get government aid.

This is just the beginning of a predicted hedge fund fallout
, which people have been talking about for some time.

I’ve been eyeing my own hedge fund investment cautiously for a little while. I don’t want to pull out, because I figure I already lost most of what there was to lose.

The fund’s manager appears to be elated at the prospect of cheap stocks. I’m with him. Even if the market falls more, I have faith that his stakes will pay off in the long run. I may even purchase more of his fund.

I’m staying. Anyone else riding it out with hedge funds?

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