How Close Is Cerberus To The Ledge?

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Cerberus, the private equity firm which has taken large positions in Chrysler and GMAC, is stopping year-end withdrawals from one of its large funds.

According to The Wall Street Journal, "Stephen Feinberg, the head of the New York-based investment firm, told clients in a letter last week that the flagship Cerberus Partners fund plans to pay 20% of year-end withdrawals in cash and suspend the remaining withdrawals for investors for up to one year."

Does the news get worse than that? Maybe.

The Cerberus Partner’s Fund lost money on bad bets on the bond market. In total, the firm manages $27 billion. But, it faces the possibility that the value of its investment in Chrysler could go to zero. It paid $7.4 billion for an 80% interest in the automaker in May 2007.

Cerberus does not appear to give out enough information to tell how all of its other investments are doing, but a number of funds have had to close their doors and pay investors back whatever money was left after losses on investments.

If Cerberus makes any more bad bets, it may not be around at the end of 2009.

Douglas A. McIntyre