SFO to investigate collapse of Weavering hedge fund group

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The Independent Online

The accountancy firm Pricewaterhouse Coopers has called in the Serious Fraud Office as it tries to determine what might be recouped by investors and creditors in a hedge fund controlled by Weavering Capital, the investment company that is now in administration. The fund collapsed amid concern its value may have been mis-stated. The discrepancy means there is not enough cash to repay creditors or the fund's investors, prompting interest from the SFO.

An SFO spokeswoman said it was seeking an early meeting with PwC, which serves as liquidator to the fund in question, the Weavering Macro Fixed Income Fund Limited.

"It's literally a case of winding it down and seeing if there will be any returns, although it is clear they will not be able to meet all the redemption requests," said a source close to the process. "Then it's about going through various creditors and seeing who gets what."

The accountant is also investigating the sequence of events that led to the fund's collapse. The fund's main asset appears to be a derivatives trade with an offshore company controlled by the fund's founder and chief executive, Magnus Peterson. But this counterparty, according to PwC, could not have afforded to pay out on the trade.

"It appears likely that there will be a very substantial shortfall to the fund's creditors and its remaining shareholder investors may be left with little," said Matthew Wilde, partner at PwC.

The collapse of the fund has also sent Weavering Capital itself spiralling into trouble. The firm on Thursday night appointed the boutique financial restructuring firm MCR as its administrator. It had frozen redemptions from the fund more than a week ago.

Hedge funds have had a hard time in recent months as markets crash, regulators look to crack down on some of their trading practices and investors, financially stretched and often under pressure to repay loans from banks, ask to redeem their investments.

Statistics from the consultancy Hedge Fund Research show a record number of hedge funds liquidated in 2008.

The problem at Weavering was discovered after investors tried to withdraw $223m (£155m), of which only $90m could be repaid. The fund reported assets of $506m at the end of February, but the shortfall prompted the investigation.

"A brief review concluded that (the fund's) balance sheet value, most recently $506m, was almost entirely dependent on the value of a series of interest rate swaps, totalling $637m, which had been struck with a company which was revealed to be related to the fund manager and that lacked the value necessary to support the swaps," said PwC. "This left the fund with no reasonable prospect of paying its debts and no option but to request that liquidators be appointed."