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Following US$700 million (A$895 million) in redemption requests in
the final quarter of 2008, US hedge fund Blue Mountain introduced a new fee
structure and an optional bidding system for investors in an attempt to create
a nexus between liquidity and hedge fund fees. In October last year, hedge
fund-of-funds investing in the multi-strategy credit fund asked for hundreds of
millions of invested capital back, an event which threatened the positions of
remaining investors and forced Blue Mountain to carve out part of its portfolio
and create a redeeming share class to pay the requests. “The liquidating share
class bore its own costs for liquidity,” Jay Bryant, managing director of the
hedge fund, said.
