West Palm Beach (HedgeCo.Net) – Drake Management LLC, the firm run by former BlackRock Inc. managers, may shut down their $3 billion Global Opportunities Fund, according to a recent letter to investors.
The firm’s largest hedge fund, which saw a decline of 25% last year, is toying with the idea of closing it’s doors due to “sharply negative performance and the extreme volatility and illiquidity of certain capital markets over the last six months.”
Feeling the hit from the subprime mortgage crisis, Drake had already stifled redemptions in December of last year, after they “attempted to convince redeeming investors to voluntarily rescind their redemption requests.” The firm is reviewing other possible courses of action, including giving investors the option of moving their assets into two new funds, or continuing on in a “business as usual” manner. If the latter occurs, suspensions on redemptions would still be effect for the time being.
Drake Management runs a total of three hedge funds, with a combined $13 billion in assets. They are considering similar courses of action for their two other hedge funds, Drake’s Low Volatility Fund and their Absolute Return Fund. Last month, Drake froze redemptions to their Low Volatility Fund, preventing investors from "liquidating investments in a market characterized by unprecedented illiquidity.”
Drake pointed out that “despite the combination of increased volatility and reduced liquidity that has punctuated recent trading sessions, to date Drake’s hedge funds remain in good standing with all of its counterparties, having met all collateral requirements and obligations. Further, each of the hedge funds maintain a healthy cash balance.”
Drake’s struggle comes at a time when many hedge funds that manage large amounts of assets are being forced to liquidate. Just this month, London based Peloton Partners closed their two hedge funds that once managed $3 billion after their lenders pulled back on credit.
The Global Opportunities Fund was launched in 2002 by the firms founder, Anthony Faillace and Steve Luttrell. Prior to the recent duress, the fund was posting returns of 13.4% a year on average. A conference call stating the firm’s decision is expected to be made next week.
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net
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