Highland Capital Management on Tuesday announced about 86% of investors in its troubled flagship hedge fund, the Highland Crusader Fund, approved a three-year plan to distribute the assets of the fund, spokesman Stefan Prelog confirmed in an interview.
The plan to give back the assets of the now $1.65 billion fund was developed by an investor-led group, Mr. Prelog said. Highland Crusader's investors are predominantly institutional, Mr. Prelog said.
The plan comes nearly three years after the credit specialist firm's announcement that it will close the fund, which was hit by losses on high-yield, high-risk loans and other types of debt during the 2008 financial crisis, Mr. Prelog said. Redemptions from the fund have been suspended since October 2008.
“The wind-down process provided time for the prudent disposition of illiquid assets, and has helped the fund nearly double in value over the last two years. In support of the fund, Highland waived millions in management fees and recovered significant amounts from counterparties for egregious actions during the global financial crisis,” said James Dondero, co-founder and president of Highland Capital Management, in a news release.
Highland Capital Management will remain the manager of the fund and will immediately distribute about $350 million to investors. The remaining $1.3 billion will be disbursed over the next three years, Mr. Prelog confirmed.
According to the Highland Capital Management news release, the $1.9 billion Houston Municipal Employees Pension System “consented unconditionally to the distribution plan, without supplemental consideration.”
In May, the Houston pension fund sued both Highland Capital Management and J.P. Morgan Chase over claims that willful looting led to the demise of the Highland Crusader Fund.
The Crusader Fund “was harmed by virtue of being stuck with poor quality assets that it would not have had if the partnership had been managed in the best interests of the partnership and its limited partners,” lawyers for the pension plan said in the complaint filed in Delaware Chancery Court.
The pension plan, which invested $15 million in the fund, sought unspecified losses caused by the alleged wrongdoing.
Neither Rhonda Smith, executive director of the Houston plan, nor Erin Perales, the plan's general counsel, returned a call confirming that the plan accepted the distribution plan.
In addition to the Highland Crusader Fund, Highland Capital Management managed $22.9 billion as of May 31 in bank loans, high-yield credit, distressed debt, structured products, real assets and long-short equities.
Bloomberg contributed to this story.