Harmony Capital To Sell Assets At Steep Discount

Sep 7 2011 | 11:36am ET

Hedge fund Harmony Capital has agreed to sell all of its assets in a deal that will allow its managers to continue to manage those assets.

The Singapore-based firm told clients last month that an undisclosed buyer had bid US$70 million for the assets, a 26% discount to the fund's net asset value on Aug. 15. It's also US$26 million less than a non-binding bid Harmony, which suspended redemptions in 2008, received in May.

The new bid has caused a fury among investors—who accepted the redemption freeze in exchange for a diminishing management fee structure—as Harmony appears to have waited until it squeezed the last management fees from clients before striking the lower deal.

"Why did they wait until the management fees had run out before deciding to sell?" one investor asked Reuters. "If they were prohibited from managing the assets after the sale, we could accept that they were protecting our interests. This way, we take a big loss on current value, while they can liquidate the portfolio immediately and claim a fat fee."

Chief investment officer Suresh Withana admitted in the letter to investors that his role and that of executive director John Nicholls in managing the assets after the sale "creates a conflict of interest for the directors of the fund's board who also have interests in the manager." But Withana said he and Nicholls would abstain from voting on the sale.

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