Can a Hedge Fund Retroactively Amend Its Partnership Agreement to “Rescind” an Investor’s Redemption Request?

As the subprime mortgage market began to collapse, a hedge fund amended its limited partnership agreement (LPA) to “rescind” a pending redemption request and to impose a prospective lockup of investor funds.  An investor whose redemption request was rescinded by that amendment sued the fund, its general partner and the general partner’s managing member, alleging breach of contract, breach of fiduciary duty and other claims.  A federal court recently ruled on whether the fund breached the LPA because the general partner had no authority to approve an amendment that was “in contravention of” the LPA without the consent of all of the fund’s investors.  This article provides a detailed discussion of the factual and procedural background of this case, and the court’s legal analysis.

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