Citadel Redemption Model Attracts Interest

Chidem Kurdas

Citadel Investment Group may have found the right balance between clients’ desire not to have to wait too long to redeem with the need for stable capital that can be used for long-term investments. Other firms see this compromise as a possible model for their own products.

Investments in Citadel Kensington, for instance, can in part be redeemed on a quarterly basis. But another portion of the capital is routinely locked up for 18 months. If the money is not redeemed at the end of that period, it is locked again for another 18 months. This combination has gained  wide acceptance, a client says.

Investors may be well inclined because of Citadel’s strong returns in recent years. Crain’s Chicago Business reported this month that Citadel Kensington and Wellington funds made 26% in 2012, after returning more than 20% in 2011.

Last year, Fitch Ratings cited Citadel’s “effective liquidity management program” in affirming the debt ratings of Kensington Global Strategies and Wellington funds. The redemption conditions are part of liquidity management, a key issue for many managers.

Whether the balancing act will work for different types of funds and under different conditions is an open question. It does offer flexibility in setting the fraction of capital subject to short-term redemption vs. locked up for a longer period.

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Tags: Crain's, Fitch Ratings, Investors, withdrawals