The recent freezing of a hedge fund is leading Rydex to open end one of its funds. The chain of events was set in motion by last fall's Refco bankruptcy filing.

Refco was a disaster for its shareholders, including a hedge fund run by PlusFunds. As the MFWire reported last week, PlusFunds was forced to cease redemptions in its SPhinX Managed Futures fund after the court overseeing the Refco bankruptcy froze some expected payouts.

PlusFunds' decision then hit Rydex's SPhinX Managed Futures fund, a $200 million closed end fund that has 11 percent of its assets invested in the PlusFunds hedge fund. The Rydex fund is a fund of funds investing in hedge funds.

To fix the situation, Rydex is planning to merge the SPhinX Managed Futures fund into its Absolute Return Strategies Fund, according to an SEC filing.

The changes to the fund's structure require board and shareholder approval and will likely take until at least May 1, according to the filing.

Shareholders in the fund will see 90 percent of their account credited initially and the remaining 10 percent frozen based on the results of PlusFunds payouts and the Refco proceedings.

"We don't consider liquidity concerns to be acceptable in a product of this structure," Jeff Joseph, managing director of the alternative investment group at Rydex Investments, told the Wall Street Journal. 

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