Ritchie Fund Rewrites Rules

If anyone needs proof that investing in hedge funds can be a hair-raising experience, Ritchie Capital Management is Exhibit A.

The $3 billion money manager, which is run by ex-football player A.R. Thane Ritchie, has spent the last few months inundating investors with a lengthening list of restrictions that govern everything from when and how much money can be withdrawn from the fund to how its assets are valued. Don't like it? Well, you're free to vote against some of the rules -- as long as you don't mind losing access to your money for three years.

The fund says the steps, which include a 10% limit on asset withdrawals, will be good for investors in the long run, giving managers a free hand to pursue unconventional strategies that promise big returns. Some investors view it less charitably.

"It is a disaster," says one who spoke on condition of anonymity. "They don't give you any information. It's not clear to me what I own."

The fun continued this month, when Ritchie sent a letter to investors explaining that because of the illiquidity of certain investments and an ongoing regulatory probe, Ritchie adopted a new way of calculating its net asset value, which investors use to gauge performance. The missive arrived in mailboxes two weeks after the last quarterly withdrawal deadline of Nov. 15.

"Ritchie made it complicated to distribute assets. It's getting hard to get the NAV," says one investor. As a result, the fund has been hard hit with redemptions, this investor says.

Ritchie agrees that redemptions have occurred. A fund spokesman says more investors did take money out last quarter, but that the situation has since stabilized.

"Due to some changes in fund terms, we had a larger-than-normal amount of redemptions at the end of September. But it was a one-time event, and now we're back to business as usual," the spokesman says.

All this is going on at a fund that isn't exactly lighting up the league. A source familiar with its performance said that Ritchie Multi-Strategy Global, the shop's $400 million flagship, was down 4% in 2005 through the end of last month.

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