Tuesday, July 3, 2007

Hedge Fund Closes Redemptions

From Bloomberg:

John Devaney, who invests in subprime- mortgage bonds, restricted redemptions to protect some of his Horizon Strategy hedge funds from being forced to sell assets.

It's ``a defensive move because we had an unusually high number of redemption requests,'' Michael Gregory, a spokesman for Devaney's United Capital Markets Holdings Inc., said in an interview yesterday. One of the investors who wanted to withdraw accounted for about 25 percent of the funds' money. United Capital, based in Key Biscayne, Florida, had about $619 million as of March, including the money-losing Horizon ABS Fund LP


In addition to the Bear Stearns funds, this year's declines have claimed UBS AG's New York-based Dillon Read Capital Management LLC hedge fund and Caliber Global Investment Ltd., a $908 million fund managed in London by Cambridge Place Investment Management LLP. Both have been shut down.

In this article at the Huffington Post I argued the market would eventually be alright, but we would see a few poorly managed funds take a big hit. This is what appears to be happening.

The main issue right now is investor confidence in these funds and this market. If we see a rash of redemptions we could see a big problem emerge very quickly.