RAB Flagship To Go On The Block

Feb 24 2010 | 3:38am ET

In a further sign of the troubles plaguing its flagship hedge fund, RAB Capital is taking the unprecedented step of putting the whole fund on the secondary market.

The London-based hedge fund will allow all investors in its US$550 million Special Situations Fund to sell their stakes in a Dutch auction next month. While clients of the firm approved a new three-year lockup in September 2008 in exchange for fee reductions, the fund’s failure to partake in last year’s hedge fund rally led to renewed calls for liquidity.

Special Situations, which once managed as much as US$2 billion, lost 70% in 2008. But while the average hedge fund returned approximately 20% last year, Special Situations rose just 4.6%. In order to recoup all of its losses from 2007 and 2008, the fund, which is up 3.33% this year, needs to rise another 230%.

The Dutch auction, organized by Credit Suisse, will open on March 8, the Financial Times reports. It is unclear how many investors will partake in the sale; investments in the fund are likely to go at a steep discount.

RAB has taken several steps to improve the performance of Special Situations. Former RAB CEO Philip Richards stepped down from the firm’s top post to focus on the hedge fund. Philips has also sought to modify the fund’s strategy, so far to no avail.

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