ONE of Europe’s largest hedge funds, GLG, is sending a letter to investors this weekend saying it is to launch a “liquidity review” of its funds.

It is also going to stop investors making withdrawals from its $1.5 billion (£930m) Market Neutral fund for six months. The review will decide the best way to preserve capital in GLG’s 40 funds.

The Mayfair-based firm, run by founders Noam Gottesman and Pierre Lagrange, will also tell investors looking to quit the $2.5 billion Emerging Markets fund that they will not receive a full return as a tranche of the fund’s investments is too illiquid to sell.

The Emerging Markets fund, which has lost half of its value this year, has been hammered by stockmarket chaos in countries such as Russia where wild price swings have led regulators to suspend trading.

GLG’s top trader, Greg Coffey, who walked away from a $250m share package when he resigned in April, finally left the company this weekend.

News that GLG is freezing s o m e w i t h d r a w a l s – o r “redemptions” as they are termed by hedge funds – comes after the activist hedge fund Polygon suspended redemptions in its flagship $4 billion Global Opportunities Fund. Deephaven Capital Management in America also announced it was suspending redemptions from its $1.6 billion Global Multi-Strategy fund. Hedge-fund managers can suspend redemptions under “exceptional circumstances”. More are expected to do so as the number of investors seeking to exit increases.

It has also emerged that New York-listed GLG would breach a loan covenant if the total assets under management fall below $15 billion this year, according to a Securities and Exchange Commission filing. However, its funds are still well above this level.

The group took out a $570m loan ahead of its flotation last November. GLG said it had $23 billion under management in June and another statement on assets under management would be published next week at its third-quarter results.

GLG was not the only hedge fund in pain this weekend. Hedge-fund managers in London and New York were nursing heavy losses from the Volkswagen/Porsche deal.

Groups, including London-based Odey Asset Management, shorted VW’s shares in the belief that the company was overvalued. However, news of Porsche’s takeover and the small proportion of stock available to trade (only 5.8%) quintupled the share price. It is estimated that the fallout from the VW affair will cost hedge funds up to $30 billion. Some are considering legal action against Porsche. New York-based Elliott Associates has drafted in lawyers to assess the possibility of litigation.

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