SAN FRANCISCO (MarketWatch) -- The main hedge fund run by Bruce Kovner's Caxton Associates L.L.C. has stopped making strategic, longer-term investments, according to two people familiar with the situation.
The decision shows how the hedge fund industry's foray into longer-term investing, such as private equity, in recent years has produced tensions between fund investors accustomed to quick returns and fund managers who push for longer-term investments. It doesn't necessarily mean Caxton's strategic investments are performing poorly though.
Private-equity strategies usually require longer investment horizons, locking up investors' money for several years. In contrast, hedge funds have traditionally focused on short-term trading and have allowed investors to withdraw their money more frequently.
The combination of the two investing styles has made some hedge fund investors uncomfortable.
Caxton Global Investment Ltd. told investors in a recent letter that, as of Jan. 1, it won't pursue new strategic investments, a person who's seen the letter said on condition of anonymity. Another person confirmed the general contents of the letter, also without wanting to be identified.
Toby Young, director of investor relations at Caxton in New York, declined to comment.
Strategic investments by hedge funds are usually less liquid and often don't have market quotations. They are also usually held for longer periods, Caxton explained in the letter. The holdings make up 7.89% of the fund's net asset value, the firm noted.
Investors who want to redeem from the Caxton Global Investment fund will get their money back, excluding the portion that's in the strategic investments. They will also get new "FI" shares, which represent those longer-term investments.
The new shares also reflect a $235 million reserve that Caxton is adding to its existing strategic investments, plus other items such as expenses, according to the letter.
Caxton is one of several big hedge funds that set aside a portion of clients' money to invest in less liquid, longer-term investments. During the private-equity boom of the past few years, those moves looked attractive, but big leveraged buyouts slowed sharply after credit crisis hit hard during the summer.
Other hedge funds may now be considering similar moves to Caxton to address their less-liquid holdings.
Caxton Global Investment, which oversees roughly $5 billion, climbed 1.14% in 2007. That lagged some other large hedge funds in its field, such as the Tudor BVI Global Fund and Moore Global Investments.
The Caxton fund suffered during the summer's credit crisis, losing just over 7% from June through August. Since the fund started, it has generated annual returns of more than 17%.
Caxton said in its recent letter that it remains focused on trading in international currency, financial, commodities and securities markets.
The firm also said it's offering new class T shares in the fund. This class represents the fund's main trading business, but excludes the strategic investments, the person who has seen the letter said. 
Alistair Barr is a reporter for MarketWatch in San Francisco.
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