AbCap restructures funds to stem losses

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The Independent Online

Absolute Capital Management, the publicly traded hedge fund that was rocked by the shock resignation of its co-founder this week, unveiled a plan to restructure five of its equity funds in an effort to stem a massive outflow of capital from worried investors.

Under the proposed scheme, AbCap proposed to set up special "side-pocket" funds into which it will place illiquid holdings that it found were mis-valued by Florian Homm, the chief investment officer who unexpectedly quit on Tuesday.

The side-pocket holdings, which are mainly stakes in small companies from which positions cannot be exited practically without depressing the price in the process, are estimated to amount to between $440m (£218m) and $530m. These would then be liquidated in the coming months.

To do so, the Mallorca-based firm has asked investors to agree to not pull their money out for 12 months. Investors would be granted separate shares in the new funds and AbCap would reset the typical 20 per cent performance fee it charges to the start date of restructuring scheme. The firm will send out the proposals next week to investors, who must respond by 12 October.

If two-thirds of investors in any of the five funds do not agree to the terms, the company would place them into "voluntary liquidation." AbCap said "investors' initial responses to the proposal have been positive".

AbCap manages $3.2bn, $2.1bn of which is invested through eight equity funds. The three equity funds unaffected by the valuation discrepancies will operate normally. The remaining $1.1bn in debt and property funds will also operate uninterrupted.

Mr Homm's surprise exit this week had a disastrous effect on the firm he founded. News of his departure sent shares down 90 per cent in three days. Yesterday, they closed up 2p at 50.5p per share. A freeze on redemption on five of the funds remains in place, while a sixth was lifted.