The folks at Ruane, Cunniff & Goldfarb [profile] are handling a big flood of outflows by making in-kind redemptions. The reaction is more reminiscent of "the kindly ones", the ironically nicknamed Furies from Greek mythology.

Jeffrey Sion Dechert LLP Partner

The Wall Street Journal reports that shareholders who redeem their shares in RCF's flagship Sequoia Fund are receiving stock instead of cash, a way to mitigate the tax pain to the remaining fund shareholders. One redeeming Sequoia shareholder called it "pretty horrendous" that he received only about five percent of his redemption in cash and the rest in shares in a single company, O'Reilly Automotive, shares which he immediately sold but had already dropped in value.

Sequoia and RCF are under fire thanks to being hit hard by the big drop in shares of drug company Valeant, a big Sequoia holding. Per Morningstar, the $5.5-billion fund suffered more than $500 million in outflows in Q1.

Barron's also picked up on the in-kind redemption story, while Bloomberg highlighted how much of Valeant (4 million shares, 11 percent of Sequoia's stake) that Sequoia sold in Q1.

The WSJ cites Dechert partner Jeffrey Sion as calling the in-kind redemptions "a perfectly legitimate strategy." Though "the move has come as a surprise to some investors and their advisers," the paper says, the in-kind redemption option is "part of a longstanding fund policy" for those who redeem at least $250,000. 

Edited by: Neil Anderson, Managing Editor


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