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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