New York (HedgeCo.Net) – Hedge fund investor Thomas H. Lee may downsize or shut the door to two of his funds after posting losses of about 40 percent this year, according to the Wall Street Journal.

The funds, which together manage about $1.5 billion, suffered losses that were multiplied by Lee’s heavy use of leverage, according to the sources who estimated he sustained losses of as much as $3.2 billion.

The funds were actually set up as funds-of funds, meaning Lee distributed investor’s money to approximately 110 other funds.  When investors moved to withdraw cash from the hedge fund, it sparked a wave of redemption requests from the original funds, creating a domino effect of losses.   

Funds that Lee invested in include SAC Capital Advisors and D.E. Shaw Group, according to the report.

Lee’s private equity firm was launched in 1974 and has grown to be one of the largest in the country.  Lee now heads up his hedge fund business, Thomas H. Lee Capital Management LLC and his new private equity firm, Lee Equity Partners.  Lee currently manages about $2.7 billion in capital.

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Reuters – Private equity investor Thomas H. Lee may shrink or shut down two funds that had $1.5 billion in assets after suffering losses of about 40 percent this year, the Wall Street Journal reported on Thursday, citing people familiar with the situation.

Hard-hit hedge funds run by Lee farmed out investor money to about 110 other funds, including SAC Capital Advisors and D.E. Shaw Group, according to the paper.

While Lee designed the so-called funds-of-funds to have low volatility with steady, consistent returns, he borrowed heavily to multiply the size of his bets, piling up debt of as much as $3.2 billion, the sources told the paper.

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Wall Street Journal – In 2006, Lawrence Summers resigned as president of Harvard University and took a position as a part-time managing director with D.E. Shaw Group, a New York hedge fund with a reputation as one of the most secretive trading outfits in the world.

D.E. Shaw is known for using sophisticated computer-based quantitative strategies to make money on fleeting movements in the stock and bond markets. The fund has been a top performer, returning 15% to 20% a year over the long term, and in two decades has grown into a global powerhouse. But like many funds, it has taken hits in the credit crisis.

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