Absolute Capital Blocks Redemptions, Proposes Fund Restructurings

Sep 19 2007 | 2:31pm ET

Absolute Capital Management Holdings is trying to stop the bleeding by blocking investors from withdrawing money from eight of its hedge funds, which in total manage $2.1 billion.

One day after its co-founder, Florian Homm, abruptly resigned over compensation issues, the firm told investors today that they shouldn't expect redemptions for a year while it restructures the funds.

“The preliminary results of this review indicate that seven of the eight Absolute Capital equity funds contain quoted investments, which the Board believes are not immediately realizable at their stated values due to their illiquid nature,” the firm stated.

“Subsequent to Florian Homm's resignation, the Company has received in excess of $100 million in redemption notices, which, combined with the illiquid positions described above, will force the suspension of the calculation of the funds' net asset values and investors' ability to redeem fund shares in the normal course.”

As a result, the Board is restructuring the equity funds to create a side pocket share class structure whereby the illiquid positions would be transferred into separate portfolios, according to the firm. Following the restructuring, investors will hold two share classes in each of the funds: a liquid portfolio and an illiquid portfolio.

“As part of this proposed restructuring, the equity funds would seek a 12 month lock-in from all investors. The effect of this action will be to close the affected funds to redemptions for the period, thereby ensuring that all investors in the funds are treated equally,” the firm said.

The firm added that a large part of its assets under management comprising its fixed income and real estate businesses, “which are managed independently and have approximately $1 billion and $130 million respectively under management, are not affected by these matters.”

After falling 70% yesterday, Absolute Capital shares dropped a further 48% today.

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