DOG DAYS FOR CERBERUS AS INVESTORS FLEE

For a hedge fund named after a three-headed guard dog, Cerberus Capital is having an awfully tough time keeping its clients from fleeing for the exits.

The giant New York-based hedge fund run by Stephen Feinberg is facing some $5.5 billion in investor withdrawal requests — commonly called redemptions — representing a whopping 71 percent of its nearly $8 billion flagship fund.

“We have been surprised by the response,” Feinberg reportedly told investors in a letter sent late Thursday.

Cerberus in July rolled out a restructuring that included giving investors a chance to bail from the fund if they wanted, but the firm was banking that its clients would simply move assets to another fund that offered lower fees instead of wanting to pull out their money entirely. The Wall Street Journal Web site first reported news of Cerberus’ massive redemptions.

That level of investor abandonment marks a fresh black eye for the badly battered Cerberus, which got its name from the three-headed canine in Greek mythology that guards the gates of hell. Cerberus has seen its once sterling reputation reduced to tatters thanks to failed investments in troubled companies, including GMAC and Chrysler.

It’s also a stinging rebuke for the secretive Feinberg, who is rarely photographed and seldom gives interviews. Indeed, despite being at one time the hedge fund everyone wanted to join, Cerberus over the past year has proved disastrous at investing other people’s money, with Chrysler and GMAC bailed out by Uncle Sam.

The Cerberus Partners fund is reportedly up 3 percent for 2009.