From: Reuters
Published February 22, 2008 03:46 PM

D.B. Zwirn to liquidate $4 billion in assets

NEW YORK (Reuters) - D.B. Zwirn & Co., a $5 billion hedge fund group managed by investor Daniel Zwirn, will liquidate its two largest hedge funds after investors demanded some $2 billion in withdrawals, a person familiar with the situation said on Friday.

The New York-based firm told investors in a letter on Thursday that it would sell assets in two funds, its Special Opportunities Fund and a sister offshore fund, which hold about $4 billion combined, the source said.

The investors' redemptions come after the firm disclosed that it faced questions from its auditors about its accounting for operational expenses, the source said.

Elise Hubsher, managing director of investor relations for D.B. Zwirn, declined to comment.

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The firm said it may take years to liquidate the funds, because much of the holdings are illiquid assets, such as private loans, derivatives and other thinly traded assets, the source said.

The liquidation is a blow to Zwirn, who was previously a senior portfolio manager of the Special Opportunities Group of Highbridge Capital Management, which is majority owned by JPMorgan Chase & Co <JPM.N>.

Zwirn was also previously a portfolio manager with MSD Capital LP, the private investment firm of Dell Inc. <DELL.O> founder Michael Dell.

"Anytime a fund reportedly is losing 80 percent of its assets, it calls into question how sustainable the firm is on a continuing basis," said Daniel Farkas, a hedge fund analyst at Morningstar Inc <MORN.O>. "But things are still playing out so it's too early to say."

Farkas said most hedge funds face redemption requests when they face large losses, such as in the case of Amaranth Advisors and Sowood Capital, two funds that collapsed in recent years. It is relatively unusual for firms to face large redemption requests over accounting issues, he added.

(Reporting by Dane Hamilton, editing by Leslie Gevirtz)

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