Credit Recovery Funds Dropping Like Flies

Feb 8 2010 | 10:35pm ET

When hedge funds rushed last year to launch distressed debt funds designed to profit from the economic recovery, many expected the opportunities to last for at least a couple of years. But many are closing less than a year after their debut.

BlueMountain Capital Management liquidated its $100 million fund last month. Silverback Asset Management and Highland Capital Management began returning money to investors in their funds last year, as did Declaration Management & Research, Bloomberg News reports.

Chapel Hill, N.C.-based Silverback launched its $210 million convertible-bond fund in March. The $506 million firm began returning money to investors in December. In those 10 short months, the Investcorp Silverback Opportunistic Convertible Fund has gained 121%.

About a third of the money was returned in December, fund manager Elliot Bossen told Bloomberg. The rest will be sent back before July.

“The opportunities in the market aren’t as huge as they were,” Bossen said of the fund, which was set to have a two-year lifespan.

Highland’s fund got an even earlier start, debuting in November 2008. And it enjoyed higher returns as a result, soaring 138% before the Dallas-based firm pulled the plug on the CLO Value Fund I. That fund had been scheduled to last until 2014.

“We were surprised by how fast the market rallied,” portfolio manager Gibran Mahmud told Bloomberg.

McLean, Va.-based Declaration also launched its funds in November 2008, closing them in December. The firm’s DMR Mortgage Opportunity Companion returned 42.3% over the period.


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