Antara Capital Freezes Assets Hard to Sell as Returns Decline

Antara Capital, a hedge fund with a valuation of $1.3 billion and backed by Blackstone Inc., has taken a significant step by freezing its hard-to-sell assets from redemptions. This decision came in the wake of the fund experiencing a second consecutive year of declining returns. To mitigate the impact of these illiquid private investments on the fund's overall performance, these assets were placed into a side pocket in February 2023. This move is designed to prevent the necessity of a fire sale of the investments, which have been a primary factor in the fund's recent underperformance. Despite these challenges, more than 80% of Antara's investors have agreed to the creation of the side pocket, indicating a level of support for the fund's strategy during this turbulent period.

The main fund managed by Antara Capital, led by Himanshu Gulati, experienced a 14% loss in 2022 and is estimated to have a further 18% loss in 2023. Interestingly, if the hard-to-sell private investments were not considered, the fund would have actually made gains in 2023. This fact highlights how much these assets have affected the fund's financial performance recently. Despite these difficulties, investors who have been with the fund from the start have seen over 50% gains, showing the potential advantages of remaining invested in Antara during its challenging times.

The idea of side pockets is not a new concept in the hedge fund world. These special sections were especially used during the 2008 financial crisis, allowing funds to keep their hard-to-sell assets separate from those that are easier to sell. This approach helps avoid selling assets at lower than their worth and offers a way to handle investments that aren't easy to liquidate. It's believed that during 2008, about $200 billion to $360 billion were moved into side pockets, making up to 20% of the industry's assets at the time. Although most side pockets from that period have been dealt with, some can last for a long time, underscoring the difficulties and complexities of managing hard-to-sell assets in a hedge fund's portfolio.