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Bloomberg – 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 yesterday 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 .

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The Independent – The financial fall-out in the vast, opaque credit default swaps market caused by the collapse of Lehman Brothers could be smaller than originally feared, analysts say.

Optimism was rising yesterday that the unwinding of insurance contracts on Lehman debt might involve the transfer of barely $6bn, and that the settlement next week can be completed without a major player failing to pay.

The concern had been that banks and hedge funds who promised to compensate trading partners for losses on Lehman bonds would not have the money to do so, triggering a chain reaction of losses through the financial system.

Although Lehman bonds were valued in a closely-watched auction last Friday at just 8.625 cents on the dollar, and sellers of credit default swaps will have to pay out a higher-than-expected 91.375 cents on the dollar, the great majority of players are both buyers and sellers of credit default swaps – meaning they can net off their exposure.

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