Sequoia shareholders who redeem more than $250,000 will likely receive stock rather than cash, according to a recent Wall Street Journal article. The article identifies one shareholder who received about 5 percent of his redemption proceeds in cash, with the remainder in the stock of a single company. According to fund lawyers interviewed for the article, while many funds reserve the right to redeem in-kind, funds typically do not do so for redemptions by individual investors. Additionally, the article states that it is also quite rare for a fund to redeem equities in kind since those securities are more easily traded than fixed income instruments.
The Sequoia Fund has experienced significant outflows this year, in large part due to the effect of the steep decline in value of the fund’s large stake in Valeant. The redemptions-in-kind are just the latest challenge for the fund – which has already experienced the resignation of the fund’s manager and two independent directors and faces a number of shareholder suits.