Deephaven Capital Managment LLC | Hedge Fund
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Resource #1 (2.2.09) The coming wave of consolidation in the hedge fund industry has begun.
Deephaven Capital Management, one of the best-known names in the hedge fund business, signed a deal on Tuesday to sell the assets of its flagship fund to its rival, Stark Investments — a move that will essentially shut down the 14-year-old firm.
Stark, which manages about $10 billion in assets, has agreed to pay an initial $7.3 million for the assets in Deephaven’s Global Multi-Strategy Fund. The deal also calls for Stark to pay an additional amount up to $37.2 million depending on how many Deephaven investors choose to roll their assets into funds managed by Stark and the performance of those assets, net of fees, over the next two years.
Deephaven’s Multi-Strategy Fund at one time managed nearly $3 billion, but was stricken by huge withdrawals last year after recording losses of about 32 percent. In October, the Minnetonka, Minn.-based firm halted investor withdrawals after clients asked to redeem more than 30 percent of their capital. The fund now manages about $1.2 billion. source
Resource #2 (10.31.08) Deephaven Capital Management LLC, the hedge-fund unit of stockbroker Knight Capital Group Inc., froze a $1.6 billion fund after investors asked to get back 30 percent of their money.
Withdrawals from the Deephaven Global Multistrategy Fund were suspended so managers wouldn't be forced to sell assets in falling stock and debt markets, the Minnetonka, Minnesota-based firm said today in a letter to investors. Lenders and trading partners also imposed stricter financing requirements, according to the letter.
Deephaven Global, which trades a variety of securities including bonds and commodities, follows RAB Capital Plc, Ore Hill Partners LLC and Highland Capital Management LP in limiting withdrawals amid the worst financial crisis since the Great Depression. The fund lost 15 percent this year through September, and Deephaven estimated it has fallen an additional 10 percent this month. The fund has returned an average of 16 percent annually since opening in 1994.
``This level of redemptions in the current market environment forces the question of whether such redemptions can be processed in the ordinary course without disadvantaging both continuing and later redeeming investors,'' said the letter, signed by Colin Smith, Deephaven's chief executive officer .
Jonathan Gasthalter, a spokesman for Deephaven, declined to comment.
The fund has been hit in part by falling prices on convertible bonds, corporate and distressed debt, and credit derivatives, the letter said.
Convertible bonds have tumbled 30.5 percent since Aug. 31, according to an index published by Merrill Lynch & Co. Bank loans tumbled to a record low of 66 cents on the dollar last week from 88.5 cents at the beginning of September, according to Standard & Poor's LCD. Today, they were at 69.6 cents on the dollar.
Hedge funds have lost an average of 20 percent this year, the most on record, according to the HFRX Global index compiled by Hedge Fund Research Inc. in Chicago.
Smith said prime brokers have increased requirements on borrowing, forcing Deephaven and other hedge funds to sell assets or post more cash to meet margin calls. Deephaven, which manages $2.6 billion, is working on a schedule for when it will let investors remove money from the fund.
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