Posted in Finance, Accounting and Economics Terms, Total Reads: 35
Definition: Redemption Suspension
Redemption suspension occurs when the managers and the trustees of the hedge funds come in conclusion that the redemption demands of the money of the investors will be taken u only after the end of the suspension period. Such kind of redemption is very rarely undertaken.
As already mentioned this is a very drastic step, the managers and the trustees have to look for other option before resorting to redemption suspension. The decision should all time be in the favour of the investors as a whole All the regulators and the investors must be informed about the suspension and this suspension should be kept for minimal time as possible. This suspension has to be constantly managed by the managers and the trustees and investors must be regularly informed.
Such kind of suspension generally have a negative effect on the sentiments of the investors in the hedge funds. After the lift on the suspension generally the more investors ask for redemption as they fund losses the trust of the investor.
• In order to implement such kind of suspension it should be mentioned in the terms and conditions of the prospectus
• A hedge fund is generally based on speculation and redemption means that the investor wants to withdraw their investment. Normally redemption includes paying back the principal amount. Redemption can be at par or at the original value depending on the conditions of the fund which is different for different funds
• Such kind of scenario happens rarely for example
(1) Natural disasters, which leads to closure of the financial market
(2) Merger of funds which my lead to change in sentiments of the investors and lead to more investors demanding for redemption
(3) In case the key participants like trustees etc. closes down.