Investors Fleeing Cerberus

I guess this isn’t a big surprise but probably worth noting anyway and I do have an ulterior motive for writing this post which I shall divulge at the end.

At any rate, Cerberus, the giant operator of hedge funds not the mythical dog, is watching its investors leave in droves. Here is how the WSJ reports the news:

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the U.S. auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world.

Clients are withdrawing more than $5.5 billion, or nearly 71% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter.

“We have been surprised by this response,” Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

The client exodus is a reversal of fortune for Mr. Feinberg and Cerberus. The New York investment firm emerged as one of the most successful private-equity and hedge-fund firms over the last decade — an era when these vehicles for the rich used cheap money to snap up troubled companies and vowed that their financial wizardry would make their investors a fortune. But investments in those very assets — particularly Chrysler LLC and GMAC LLC — proved to be the Cerberus funds’ undoing.

Cerberus isn’t alone in seeing assets flee and its once-lucrative business crumble. The firm’s success and now its struggles mirror the bubble in so-called alternative investments over the past decade — and the air that has since come out of it.

That they are surprised that investors are voting with their feet may stand as testimony to the utter cluelessness of both men. Having invested several fortunes in industries that most undergraduates with a firm grounding in finance 101 could have told you would come to no good, Cerberus is quickly coming to be the Drexel Burnham of this generation of financiers. The real surprise is that 29% of their investors haven’t asked for their money back.

And why did I want to put up this post. Well, to be perfectly honest, with Cerberus shrinking into a perfectly harmless little hedge fund I figured this might be the last time I get to use the picture of the “dog” and it is one of my favorites.

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