Updated from 3:30 p.m. EST
Cerberus Capital Management, the $27 billion private investment manager, has limited withdrawals from its Cerberus Partners fund, which is down 16% for the year through November, according to a
The network's David Faber says Cerberus has also limited withdrawals on other funds where it doesn't already have investor money locked up for several years under the original terms of the contract.
Citing a Dec. 19 letter from Cerberus founder and top executive Stephen Feinberg, Faber says Cerberus is sitting on losses in residential mortgage backed securities, having wrongly believed the market for RMBS had bottomed at the end of September.
The report says the fund received withdrawal requests totaling 16.5% of the Cerberus Partners fund's net asset value, but will only allow investors to take out 20% of what they have requested. Citing company officials, he says the fund is worth between $3 billion and $4 billion. Faber says Cerberus has the right to limit withdrawals for up to a year, but will then cut management fees by 60% for investors who leave money in after the year is over.
Cerberus, which opened its doors in 1992 with just $10 million under management, according to
The New York Times
, started out investing in bonds of troubled companies before morphing into one of the world's largest private equity funds.
The firm has investments throughout the world in every major industry, but is best known in the U.S. for troubled majority investments in Chrysler and GMAC, the finance arm of
(GM - Get Report)
. It continues to employ hedge fund-like strategies such as buying distressed debt.
Several well-known hedge funds, including Citadel Group and
Fortress Investment Group
(FIG - Get Report)
, have lately moved to stop investors from pulling out money. Withdrawals can be harmful to a fund's performance as it is forced to sell investments that are under water. The problem can quickly spiral out of control as others in the market catch a whiff that a hedge fund is troubled and begin shorting its investments.
A spokesman for Cerberus declined to comment on the