Bloomberg News

Highland to Take Another Three Years to Return Hedge-Fund Money

July 19, 2011

July 19 (Bloomberg) -- Highland Capital Management LP, the $23 billion investment fund run by James D. Dondero and Mark K. Okada, said it will take another three years to return most of the money from a hedge fund it froze during the financial crisis in 2008.

Highland will immediately return about $350 million in cash to clients from its Crusader Fund and the remaining $1.3 billion over the next three years, John Honis, a partner at the Dallas- based firm said in a statement today. The distribution plan was approved by about 86 percent of the fund’s investors, it said.

Highland shut its flagship Crusader fund, as well as a second fund, in October 2008 following losses on high-yield, high-risk loans and other types of debt. The firm said at the time that the funds would be liquidated over three years. Highland and New York-based Harbinger Capital Partners LLC are among hedge funds that haven’t returned all money to clients after freezing withdrawals following the financial crisis.

“Together, this completes all wind-down processes begun by Highland during the global financial crisis,” Highland said in the statement, adding that its hedge funds account for a “small” portion of its overall business.

The Crusader fund distribution plan follows a similar agreement Highland reached with investors earlier this year for its Credit Strategies Fund, the firm said. Highland said it waived management fees on the funds while they were being liquidated.

‘Prudent Disposition’

“The decision to wind-down the Crusader fund during the depths of the global financial meltdown was difficult, but we believe it was the right decision,” Dondero said in today’s statement. “The wind-down process provided time for the prudent disposition of illiquid assets, and has helped the fund nearly double in value over the last two years.”

A Bank of America Merrill Lynch Index of U.S. distressed debt has gained about 185 percent since October 2008 as the Federal Reserve bolstered demand for the securities by keeping benchmark interest rates near zero.

Highland said that Houston Municipal Employees Pension System had consented “unconditionally” to the distribution plan, without supplemental consideration. The retirement plan sued Highland and JPMorgan Chase & Co. in May over claims that willful looting led to the demise of the Crusader fund.

Highland had said in January 2010 that it was struggling to return money because investors couldn’t agree on the terms of the liquidation. At the time, the firm hadn’t returned all money to clients who put in redemption requests before the funds imploded in October 2008.

Highland investors were previously able to withdraw their money from the hedge funds either on a quarterly or semi-annual basis.

--With assistance from Pierre Paulden in New York and Sophia Pearson in Wilmington, Delaware. Editors: Steven Crabill, Christian Baumgaertel

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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