S&P: Side Pockets Grow As Asset Values Rebound

Jul 23 2010 | 12:23pm ET

Despite a major rebound in the values of once-illiquid assets, hedge funds with side-pockets have proven resistant to selling them or desegregating them, according Standard & Poor’s Fund Services.

In many cases, the side-pockets have actually outperformed the hedge funds’ main portfolio, according to S&P’s Randal Goldsmith. That has had the side-effect of increasing the size of the side-pocket relative to the whole portfolio. But in spite of that fact, and in spite of the fact that a rebound in asset values have made such assets easier to sell, some hedge funds are holding on to them.

“It’s the most stubborn area of illiquidity to resolve,” Goldsmith told Reuters.

While the assets have become increasingly liquid, some hedge fund managers are still concerned about wide spreads, Goldsmith said. Still, S&P has been stripping some of the hedge funds it rated whose side pockets become too large.

“We’ve been disappointed how slow they’ve been to reduce them as a percentage of the total portfolio,” Goldsmith said. He added that S&P has been denying ratings to some funds that have sought them after due diligence found large side pockets.


In Depth

Malik: The Science of Deal Sourcing 201

Aug 27 2015 | 5:35pm ET

Deal sourcing is understandably a hot topic among private equity firms because it...

Lifestyle

Rolling Art Advisors Marketing Collectible Car Fund As Uncorrelated Alternative

Aug 27 2015 | 6:47pm ET

A new fund is trying to provide investors with greater access to an emerging asset...

Guest Contributor

Agecroft Partners: Hedge Fund Industry Assets to increase $250B by Summer 2016

Aug 11 2015 | 11:29am ET

Assets will continue to flow into the hedge fund industry despite long-standing...

 

Editor's Note