Citadel Eases Redemption Policies, May Cut Fees

May 18 2011 | 12:16pm ET

Citadel Investment Group has eased its redemption policies as the hedge fund giant continues to consider cutting its management fees.

Chicago-based Citadel told investors in its flagship Kensington and Wellington funds that, beginning in July, they'll be able to withdraw 10% of their assets each quarter, instead of just one-sixteenth per quarter. The new rules mean an investor in the funds, which manage $7.5 billion, or about one-third of Citadel's total assets, can fully redeem in two-and-a-half years, rather than the current four.

In addition, Citadel is raising its withdrawal gate from 3% to 5% and cutting penalties for any redemptions above that level to between 4% and 7%, down from 5% to 9%.

Both the Kensington and Wellington Funds, which are up about 9% this year, remain below their high-water marks after losing 55% in 2008. The two funds need to return another 15% before they can begin charging performance fees.

That fee may be going up, Citadel told clients: The firm said it may raise its cut of the profits to 30% from 20%, but only if it also slashes its management fees.

Currently, Citadel doesn't charge a management fee, per se, instead passing all expenses on to clients. In some years, those expenses have amounted to about 8%. Citadel said that it may impose a set 3% management fee, instead, still well below its average charge of between 4% and 6%.

The changes were first reported by Bloomberg News.

In spite of the changes, Citadel defended its onerous redemption policy, which has been in place since 1998, saying it offered "tremendous stability in our capital base" and crediting it with allowing the firm "to maximize our returns across numerous market cycles."

Citadel, which manages a total of about $11 billion, announced the cuts as it seeks to rebuild its asset base, which has fallen by almost half since 2007.


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