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United Capital's Devaney Halts Hedge Fund Withdrawals (Update1)
By Jody Shenn and Jenny Strasburg
July 3 (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.
Devaney ``prides himself as a risk-taker, someone who sticks himself out there,'' said David Castillo, who trades asset-backed, commercial-mortgage and packaged debt securities at Further Lane Securities in San Francisco.
The decision by the 37-year-old Devaney follows the near- collapse of two hedge funds run by Bear Stearns Cos., which lost money as bonds backed by subprime mortgages declined. Prices of the securities tumbled amid an increase in home-loan defaults. Owners of similar bonds may face $90 billion of losses, analysts at Frankfurt-based Deutsche Bank AG said last week.
Devaney, who founded United Capital in 1999 as a brokerage firm and expanded into hedge funds two years ago, is senior manager of the funds that were closed to investor refunds, according to regulatory filings.
Mortgage Foreclosures
The Horizon ABS offshore fund, which rose almost 40 percent last year, fell 5 percent in the two months ended May 31, data compiled by Bloomberg show. The fund trailed the average gain of fixed-income hedge funds through May, advancing 0.27 percent, compared with the 3.7 percent advance of fixed-income managers, according to Hedge Fund Research Inc. in Chicago.
About 12 percent of subprime mortgages packaged into bonds were delinquent in April by at least 90 days, in foreclosure or already turned into seized property, according to a report yesterday by Friedman Billings Ramsey Co. in Arlington, Virginia. That's up from 5.37 percent in May 2005, and the highest since August 1997. Subprime home loans are given to borrowers with poor or limited credit histories or high debt burdens.
Bear Stearns agreed to a $1.6 billion bailout for one of its money-losing hedge funds and is liquidating a second fund after they made bad bets on securities including collateralized debt obligations, many of which were backed by subprime bonds.
After the funds reported losses, investors demanded their money back, forcing the funds to halt redemptions. Bear Stearns stepped in when lenders began seizing assets.
Market `Revaluations'
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.
``People are very nervous about how deep the revaluations of these securities will have to go,'' said Virginia Parker, who helps oversee about $1.8 billion at Parker Global Strategies LLC in Stamford, Connecticut.
United Capital started as a broker-dealer specializing in low-rated and distressed asset-backed securities, collateralized debt obligations and collateralized mortgage obligations. It expanded that strategy into real estate investments and money management.
After the Sept. 11 terrorist attacks in the U.S., United Capital ``stood there waiting to make a bid'' on bonds created by bundling together aircraft leases, as insurers and other investors dumped them, Devaney said in an interview in November. Those investors had to sell because of ratings downgrades, he said. ``We figure out a bond is worth 80, and we go in and buy it for, say, 60,'' he said at the time.
Jay Leno
A graduate of Colorado State University in Fort Collins, Devaney hosted parties at industry conferences with musicians and celebrities. United Capital sponsored the 2006 American Securitization Forum Industry Dinner, headlined by actor-comedian David Spade. ``Tonight Show'' host Jay Leno was the featured star the year before, also sponsored by the firm.
Assets managed by hedge funds globally more than doubled in the past five years to almost $1.6 trillion as of the first quarter, according to Hedge Fund Research. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. |
