US lifts freeze on Libya's UK hedge fund

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A $1bn Knightsbridge-based hedge fund backed by Libyan money has resumed trading in the US after its assets, frozen on the outbreak of the anti-Gaddafi rebellion, were released.

The assets were among the first to be released of the estimated $168bn that global authorities froze in March to paralyse the Muammar Gaddafi regime. The Office of Foreign Assets Control (Ofac) privately gave FM Capital Partners (FMCP) permission to trade its US assets this month.

This was granted on the condition that the assets were not passed back to the Libyan Investment Authority (LIA), the $70bn sovereign wealth fund that invested several hundred millions of dollars in FMCP when it was set up two years ago.

This is similar to the conditions that FMCP was allowed to continue trading under in the UK when HM Treasury decided against freezing the hedge fund's British investments. The EU also allowed FMCP to continue trading.

Rather than pass any assets back to Libya, FMCP is acting as a guardian of the people's money until the political outcome of the rebellion is resolved, ensuring that the value of their investments does not decline.

A US source said that the Department of the Treasury, of which Ofac is an agency, has been "willing to entertain [trading] licence requests where entities could demonstrate that the licence would not allow for any benefit" to Gaddafi's government.

The first assets to be publicly unfrozen were $1.5bn held by US banks. The money was released last week to help the rebels' National Transitional Council meet humanitarian needs.

The LIA has a number of high profile investments around the world. Stakes in the Financial Times' owner Pearson, Oleg Deripaska's mining giant Rusal, and the Italian bank UniCredit have all been frozen by international authorities this year.

FMCP's 2010 results were filed with Companies House earlier this month, prior to the lifting of the freeze. They show that FMCP made a turnover of £9.5m last year, up from £5.7m in 2009. However, increased administrative expenses dragged pre-tax profit down from nearly £5.2m to barely £3m.

In a note to the accounts, FM stated: "The HM Treasury has issued FMCP with a licence allowing it to continue to operate, even if controlled by one of the EU's sanctioned entities, as long as funds are not made available to any of the people or organisations covered by the freeze... FMCP applied for a similar licence with respect to the US on the 11 March 2011 and are optimistic of a successful outcome for this application."