In the middle of the financial meltdown in December 2008, Centaurus Alpha Fund went down like so many other funds. Investors rejected the management’s lockup proposal and so the firm decided to close the fund. Selling the assets in the portfolio and returning the money to investors took years. Meanwhile, of course, markets recovered.
The environment became friendlier to Centaurus’ event-driven strategy. Centaurus Alpha Fund had a huge gain while it was being wound down, says an investor. Well, perhaps they should have kept it going instead of closing it? Some people needed the liquidity, said the investor. London-based Centaurus started other funds.
Something similar happened to a special-purpose vehicle Cerberus Capital set up in the crisis to hold illiquid assets seen as toxic at the time. It recovered strongly.
Will these experiences change what people do come the next crisis? No, says the investor—in a crunch most become risk averse and money flows out of risky assets, though the process reverses in due time.
Tags: Centaurus Alpha, Financial crisis
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