Cerberus cuts withdrawals from its fund

Cerberus, the fund that owns the majority of Chrysler and has made other investments in Detroit, is blocking year-end withdrawals from one of its funds. According to Reuters, "Cerberus plans to suspend year-end withdrawals for up to one year, founder Stephen Feinberg said in a letter to the investors of the fund." The firm will allow investors to take 20% of their year-end withdrawals out in cash, but that's it.

Obviously, Cerberus is being badly hurt by its investment in Chrysler and may get none of that money back if the company goes bankrupt or a government investment wipes out the car firm's obligations to its parent.

That raises the question of how much trouble Cerberus is really in. It has $27 billion in assets under management but it has put money into GMAC which is having trouble due to car and home loans. It could lose part of that money as well.

Cutting withdrawals from its funds may be a signal that other Cerberus investments have gone south. If matters get worse, it may end up being one of those fund groups that simply ends up liquidating itself and sending investors cents on a dollar. In this environment that is happening a lot. The Cerberus investments in Detroit may turn out to be its undoing.

Douglas A. McIntyre is an editor at 24/7 Wall St.