????After a year of losses, the exodus of investors from hedge funds hasn't been as great as many expected. In the case of Eric Mindich's $12 billion Eton Park Capital Management -- which fell about 11% last year -- that's because try as they might, investors still have a hard time taking their money out.
????Hedge funds loosened their terms after the carnage of 2008 alerted investors to the fact that funds weren't required to return the investors' cash just because they wanted it back. But Eton Park's terms remain among the most onerous in the hedge fund world. And since its investors have hardly made a dime over the past three years, some are starting to bail. Net redemptions last year reached about 5% of fund assets, or around $700 million.
????Mindich's claim to fame is being the youngest person, at age 27, to make partner at Goldman Sachs (GS) in 1994. When he left to launch a hedge fund in 2004, the fever to invest with the wunderkind was so great that Mindich raised a record $3.5 billion despite insisting on one of the most stringent lockups on record.
????Investors in a certain share class had to agree to keep the money in Eton Park for a minimum of 27 months, and it would take them another two years to get out, as they could only redeem one-third in any given year -- what's called a rolling three-year lockup. If the investor missed the window of opportunity after the initial 27 months, he couldn't try again for another 27. He also had to let Eton Park know 65 days ahead of time of his desire to exit the fund, and then would only receive his cash 30 days after the redemption date. The only way to get around these terms would be to pay a 6% early-exit penalty to the fund. And that wasn't all: Eton Park also reserved the right to place up to 30% of the fund in side pockets; that money would be stuck there as long as the firm wanted.
????The terms were egregious, but Mindich could demand them, and so he did. Such was the golden era for would-be hedge fund titans.
????These days, Eton Park's lockup provisions look extreme, says Leon Mirochnik, research analyst with Trim Tabs, who thinks last year's hedge fund redemptions weren't as high as expected, in part, because lockups still exist at many of the more prestigious funds. One is hard-pressed to find one with terms as tough as Eton Park's, especially given that the fund is largely invested in easily-marketable securities, not illiquid or private equity investments.
????Mindich declined to comment. His spokesperson said fund's terms are consistent with its long-term investment program.
Goldman glow dims
????As a result, Mindich's Goldman patina is wearing thin, as is the patience of his investors. As of last July, Eton Park was the 20th largest U.S. hedge fund and managed $14 billion, according to the AR Billion Dollar Club. Much of the decline since then is due to poor performance. But Eton Park has also been raising money, which has kept the net outflows to about $700 million as of the end of December, according to an individual familiar with the firm.
