Viking Global Investors, one of the largest US stock-picking hedge funds, is imposing more restrictive redemption terms on some of its longtime clients, as it pushes deeper into venture capital and other difficult to-value investments.
Last month, Viking told investors who put money into its $5.2bn Viking Global Opportunities fund in 2015 that they will be allowed redemptions only every two years, not annually as previously agreed.
Clients who do not consent to the change by September 30 will be handed back their money, the firm wrote in a letter reviewed by the Financial Times. The restrictions would begin affecting investors next year after their initial five-year lock-up expires.
Investors who have put money into VGO since last year are already subject to the two-year restriction, and affected clients can still make annual withdrawals on some proceeds from private investments.
The tighter restrictions reflect how hedge funds are increasingly interested in illiquid investments that may be tough to sell, especially
in times of market stress, but can offer better returns to compensate for the risk. Neil Woodford, one of Britain’s best-known stock pickers, was forced to suspend redemptions from his Equity Income fund in June after accumulating outsize positions in illiquid securities.
Viking’s VGO funds, split roughly evenly between public and private companies, manage almost $3bn in illiquid investments, including stakes in the plant-based burger company Impossible Foods and make-up delivery service Birchbox. It has also been an investor in Uber, the ride-sharing pioneer than went public in May, since 2015.
The firm said its plan to limit redemption opportunities for earlier investors was due to the “evolution” of its private investment program, which invested more than $580m in the first half of this year, according to the letter.
“While some of our deals have relatively short closing periods, others can take over a year to negotiate and obtain requisite approvals,” Viking wrote to investors.
“We believe this two-year rolling lock-up period better aligns VGO’S liquidity terms with our deal sourcing efforts by providing our investment staff with greater visibility into available dry powder.”
