Hedge Fund symptoms........
Drake limits hedge fund cash requests
By James Mackintosh in London
Published: January 2 2008 21:33 | Last updated: January 2 2008 21:33
Drake Management has limited withdrawals from its flagship hedge fund after investors in the high-flying New York-run fund – one of the best performing in 2005 – tried to pull out almost $1bn at the start of this week.
Drake, which had $13bn under management before hitting problems in the autumn, had unsuccessfully appealed to investors to drop withdrawal requests before deciding to pay out only a quarter of the money asked for, investors said.
Drake had enough cash in its $3bn Global Opportunities fund to meet all the redemptions but wanted to maintain a hefty cash cushion to protect remaining investors. Drake was set up by Anthony Faillace and Steve Luttrell, formerly of BlackRock, in 2001 with the backing of Icelandic bank Kaupthing, which holds 20 per cent of the management company.
The board of Global Opportunities, nominally independent of Drake, will monitor liquidity, or ease of trading, to determine when to make further payouts.
“Hopefully, there will be more liquid positions in January to allow them to liquidate the positions and pay out the money,” one investor said.
Global Opportunities was one of the best-performing funds in 2005, gaining 41 per cent in a tough year for other global macro funds, which bet on currencies and interest rates. As a result, it attracted significant new money from investors.
But the fund was hit by a series of trades that failed to perform. Mr Faillace had predicted a fall in long-dated US Treasury bonds, that the dollar would drop against the yen and, after the summer credit squeeze, that equity markets would rally. The dollar did drop, but mostly against the euro and sterling, while a flight to quality saw stocks tremble and a move to the safety of government bonds, pushing up their prices.
In October, the fund fell almost 14 per cent, while in November it dropped another 10 per cent, prompting a wave of requests for the redemption date at the end of the year.
Investors expect the cap on withdrawals to prompt further redemptions, although Drake has been trying to explain its reasons in an effort to prevent a loss of confidence.
The problems at the flagship fund are a blow for Drake as it had been expanding, launching a series of long-only bond funds and more than doubling assets under management in a year. Another hedge fund, the $1.7bn Absolute Return fund, has also seen redemptions following weak performance, investors said.
Drake declined to comment. |
