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Tuesday, 4 November 2008
Blue Mountain Freezes $3.1 Billion Credit Hedge Fund
Blue Mountain Capital Management LLC froze its largest hedge fund after clients asked to pull a “meaningful percentage” of their money even as it outperformed the industry average by almost 10-fold this year.
Blue Mountain Freezes $3.1 Billion Credit Hedge Fund
By Saijel Kishan, Bloomberg 3 November 2008
Blue Mountain Capital Management LLC froze its largest hedge fund after clients asked to pull a “meaningful percentage” of their money even as it outperformed the industry average by almost 10-fold this year.
The $3.1 billion Blue Mountain Credit Alternatives Fund declined 2.4 percent through October, compared with the 19.6 percent loss by the HFRX Global Index compiled by Chicago-based Hedge Fund Research Inc. Withdrawals were suspended so Blue Mountain wouldn’t be forced to sell assets in falling credit markets, the firm said today in a letter to clients.
“This shows that nobody is immune from the huge investor outflows in the industry at the moment,” said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company.
Investors fleeing the worst financial crisis since the Great Depression have forced hedge funds such as Deephaven Capital Management LLC and RAB Capital Plc to halt redemptions. In most cases, the funds have underperformed competitors. The Deephaven Global Multistrategy Fund was down 15 percent this year through September and lost an additional 10 percent in October.
Several of Blue Mountain’s fund-of-funds shareholders were under “liquidity pressures” from their own clients, Blue Mountain Chief Executive Officer Andrew Feldstein said in the investor letter, a copy of which was obtained by Bloomberg News.
“We are not comfortable with this state of affairs,” Feldstein wrote. “If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors.”
Investors may pull as much 25 percent of their money from hedge funds by the end of the year, Morgan Stanley said in an Oct. 24 report. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June, the New York-based bank said.
A spokesman for Blue Mountain, which oversees $5.5 billion from offices in New York and London, declined to comment.
Affiliated Managers Stake
The firm was started in 2003 by Feldstein, a former JPMorgan Chase & Co. managing director, Stephen Siderow and Gery Sampere. BlueMountain last year sold a minority stake to Affiliated Mangers Group Inc., the U.S. holding company for more than two dozen investment firms.
The Blue Mountain Credit Alternative fund has returned an average of 45.8 percent annually since inception. The fund seeks to profit from discrepancies in the prices of securities in the corporate loan, bond, credit and equity derivatives markets, a strategy known as relative-value trading.
The firm’s $1.1 billion equity alternatives fund has lost 0.9 percent this year through October, while its $400 million BlueCorr fund has returned 21.3 percent, according to the investor letter.
Blue Mountain offered investors a plan that includes waiving the notice and lock-up provisions of the Blue Mountain Credit Alternative fund for all clients. Investors have until Nov. 10 to decide whether to redeem their existing investment or exchange all or part of their investment with any one or more of three share classes.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.
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Blue Mountain Freezes $3.1 Billion Credit Hedge Fund
By Saijel Kishan, Bloomberg
3 November 2008
Blue Mountain Capital Management LLC froze its largest hedge fund after clients asked to pull a “meaningful percentage” of their money even as it outperformed the industry average by almost 10-fold this year.
The $3.1 billion Blue Mountain Credit Alternatives Fund declined 2.4 percent through October, compared with the 19.6 percent loss by the HFRX Global Index compiled by Chicago-based Hedge Fund Research Inc. Withdrawals were suspended so Blue Mountain wouldn’t be forced to sell assets in falling credit markets, the firm said today in a letter to clients.
“This shows that nobody is immune from the huge investor outflows in the industry at the moment,” said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company.
Investors fleeing the worst financial crisis since the Great Depression have forced hedge funds such as Deephaven Capital Management LLC and RAB Capital Plc to halt redemptions. In most cases, the funds have underperformed competitors. The Deephaven Global Multistrategy Fund was down 15 percent this year through September and lost an additional 10 percent in October.
Several of Blue Mountain’s fund-of-funds shareholders were under “liquidity pressures” from their own clients, Blue Mountain Chief Executive Officer Andrew Feldstein said in the investor letter, a copy of which was obtained by Bloomberg News.
“We are not comfortable with this state of affairs,” Feldstein wrote. “If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors.”
Investors may pull as much 25 percent of their money from hedge funds by the end of the year, Morgan Stanley said in an Oct. 24 report. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June, the New York-based bank said.
A spokesman for Blue Mountain, which oversees $5.5 billion from offices in New York and London, declined to comment.
Affiliated Managers Stake
The firm was started in 2003 by Feldstein, a former JPMorgan Chase & Co. managing director, Stephen Siderow and Gery Sampere. BlueMountain last year sold a minority stake to Affiliated Mangers Group Inc., the U.S. holding company for more than two dozen investment firms.
The Blue Mountain Credit Alternative fund has returned an average of 45.8 percent annually since inception. The fund seeks to profit from discrepancies in the prices of securities in the corporate loan, bond, credit and equity derivatives markets, a strategy known as relative-value trading.
The firm’s $1.1 billion equity alternatives fund has lost 0.9 percent this year through October, while its $400 million BlueCorr fund has returned 21.3 percent, according to the investor letter.
Blue Mountain offered investors a plan that includes waiving the notice and lock-up provisions of the Blue Mountain Credit Alternative fund for all clients. Investors have until Nov. 10 to decide whether to redeem their existing investment or exchange all or part of their investment with any one or more of three share classes.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.
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