Hedge Fund Side-Pocket Liquidator Hired By Bank

Nov 1 2012 | 12:42pm ET

A firm that specializes in the liquidation of hedge fund side-pockets and other so-called "toxic assets" has a potentially lucrative new client base.

Multiplicity Partners, founded three years ago to advise on the wind-down of illiquid assets, has signed its first bank. The new client was unidentified, although Zürich-based Multiplicity said it was a major continental bank.

Multiplicity is charged with valuing and selling off US$45 million worth of side-pockets for the bank, Financial News reports. The unwanted assets are in emerging market and structured credit strategies.

Until now, Multiplicty has worked primarily for institutional investors, private banks and funds of hedge funds. All told, it has wound down US$2 billion in assets, one-fifth of which were illiquid.

"The big elephant in the room that has not been addressed is that banks are holding large portfolios of illiquid assets," Multiplicity partner Andres Hefti told FN. "Although banks are reluctant to mark down the value of these positions, one day they will realize that they can no longer justify the value with their auditors, who need to independently verify them."

"This mandate is a result of extended discussions with the bank on regulatory capital requirements, valuation practices and the complexities of the secondary market," Roger Rüegg added in a statement.

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