British Investors Dump Bear, Firm Seeks Liquidator For U.S. Fund

Nov 15 2007 | 12:36pm ET

Yesterday, British investors in a collapsed Bear Stearns hedge fund stymied the firm’s attempt to liquidate it by replacing Bear as controlling party. Will history repeat itself in New York tomorrow?

In a half-hour meeting at Bear’s London office, investors in a feeder fund, the Bear Stearns High-Grade Structured Credit Enhanced Leverage (Overseas) funds, voted to oust Bear Stearns Asset Management as controlling party and replace it with forensic accounting firm FTI Capital Advisers. More than 55% of investors voted to ditch Bear.

FTI will use its control over the fund to investigate how the master fund lost essentially all of its value during the subprime credit crunch this summer, as well as why the feeder invested in the master fund in the first place.

Tomorrow, the investors in the overseas fund’s U.S.-domiciled sister feeder fund will have the chance to dump Bear as the fund’s general partner at a meeting in New York. That vote was originally scheduled for Nov. 7, but was postponed after reports that not all investors had been notified.

The directors of the overseas fund sought to preempt yesterday’s vote by seeking two weeks ago to place the fund into voluntary liquidation. In spite of the success of that vote, Bear is taking a similar approach with the U.S. feeder. The firm on Tuesday asked a Delaware court to allow it to dissolve the fund and liquidate its assets.

“The partnership can no longer operate in the manner contemplated,” Bear said in its filing in Delaware Chancery Court. It wants to name KPMG—the liquidator of the master fund, as well as the proposed liquidator for the overseas fund—to do the job.

The master fund, domiciled in the Cayman Islands, is already in bankruptcy proceedings there.

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