Knight Hedge Fund Profit Falls 29%

Apr 18 2007 | 12:21pm ET

Knight Capital Management paid dearly to keep Deephaven Capital Management and its leadership in the fold in December, and were rewarded when the hedge fund’s 2006 profit rose fourfold from 2005. But Deephaven couldn’t keep up the momentum in the first quarter.

Deephaven’s pre-tax profit for the first three months of 2007 was $18.9 million, a steep 29% decline from the same period a year earlier, when it earned $26.8 million, according to Knight Capital. Assets under management also fell, from $4.2 billion at the end of December to $3.9 billion. The one bright note was the performance of Deephaven’s funds: They averaged a 4.9% return for the quarter, well ahead of most hedge fund indices.

Jersey City, N.J.-based Knight’s main business, trading, didn’t help, either: Its profit fell by more than a third. All told, Knight’s net income for the first quarter was $31.8 million, 35% lower than a year earlier.

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