The subprime mortgage morass bogged down local hedge funds in August, which have accounted for much of Connecticut”™s job growth in the past few years, but many predict a rebound as they make adjustments in their portfolios.
Most indexes tracking local firms indicated hedge funds are still ahead of more traditional securities indexes for 2007. After posting flat results in July, the Credit Suisse/Tremont Hedge Fund Index showed a 1.5 percent drop in August, as a widespread sell-off was exacerbated by banks and brokerages reporting declining value in credit investments, triggering a “flight” to quality investments.
Stamford-based SAC Capital Advisors L.L.C. reported a 3 percent decline in August, but is up 10 percent so far this year, according to a report in MarketWatch, a Dow Jones publication.
Pirate Capital L.L.C. reportedly barred withdrawals from two “activist” funds it runs that attempt to force companies to make boardroom changes to improve performance.
The Norwalk company is run by Thomas Hudson, who cited prior fund redemptions and market turmoil in slapping the “special investment” label on the firm”™s Jolly Roger Activist funds, in an August 31 letter obtained by Bloomberg News.
The ability of impatient hedge fund investors to yank their assets represents one of the primary challenges to activist funds, according to David Nissenbaum, a partner with Schulte Roth & Zabel L.L.P. of New York City.
Special investment accounts, also termed side pockets, hold investor funds until the fund manager deems the investment”™s value has been realized.
Launched in January 2006, the Jolly Roger funds had $150 million in assets as of March that year; as of this past June, assets totaled $100 million.
Meanwhile, Darien-based Patriot Group reportedly yanked funding that would have allowed a New Jersey developer to purchase Kara Homes Inc., an East Brunswick, N.J., builder currently reorganizing under bankruptcy protection from creditors.
Greenwich-based Plainview Specialty Holdings instead will take over the company with a Lakewood, N.J., developer, pledging to invest up to $200 million to complete various projects.
A hedge fund index tracked by Greenwich Alternative Investments fell 1.4 percent in August, though for the year it is up 6.6 percent and ahead of stock indexes like the S&P 500.
Greenwich Alternative Investments blamed ripple effects of the subprime fallout and a subsequent credit crunch, which created sufficient uncertainty in global markets to affect adversely hedge funds in virtually all strategies.
Many income managers were forced to sell securities, Greenwich Alternative Investments indicated, often at deep discounts in order to reduce exposure and to meet margin calls by their creditors.
Still, some hope to capitalize. Just 13 percent of managers surveyed by New York City-based Rothstein Kass said the credit crunch and market volatility were negative developments for their firm, with 49 percent viewing the turmoil as a positive.
Stamford-based Structured Portfolio Management, which manages $675 million in assets, this month launched a new fund to purchase discounted loan packages as funds are forced to sell them off to meet margin calls.
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