Drake considers liquidating all hedge funds
By Dane Hamilton
NEW YORK (Reuters) - Drake Management, which manages nearly $5 billion in hedge fund assets, told investors on Wednesday that it is considering liquidating all three of its hedge funds, citing "challenging market conditions."
The New York-based fixed income trader, which was founded in 2001 by PIMCO and BlackRock executives, said it has been hammered by volatile credit markets, pushing down returns in its flagship, $3 billion Global Opportunities Fund and its smaller Absolute Return Fund.
Global Opportunities was down 24.55 percent in 2007, while Absolute Return was down 14.36 percent, according to investors who have seen the results. Those two and another fund, Low Volatility, are overseen by managers Anthony Faillace and Steve Luttrell.
The New York-based firm said in a letter to investors that Global Opportunities has had "sharply negative performance" in the face of "extreme volatility of certain capital markets over the last six months."
Drake said it is polling investors for input on whether it should continue the fund, start new funds, or wind down Global Opportunities. It said it is considering similar options for the other funds. Drake manages $10 billion overall, about half in hedge funds.
"Given the challenging market conditions, Drake is also considering substantially similar options for its other hedge funds," said Drake said in the letter obtained by Reuters.
Drake said that despite its travails, it isn't facing margin calls from lenders -- a factor that has sent other funds into liquidation in recent weeks, such as Peloton Partners in London. Drake has cut back on leverage in recent months.
"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," said Drake in the letter.
Last year, Drake suspended investor redemptions on its Global Opportunities fund in the face of "current market conditions," a common move by hedge funds facing losses and abandonment by investors.
Drake said it would hold a conference call within the next week to discuss the matter.
Drake officials did not return phone calls seeking comment.
(Reporting by Dane Hamilton; editing by John Wallace and Gerald E. McCormick)