Hedge Funds New Star, RAB Roughed Up

Jan 21 2008 | 8:55am ET

A pair of prominent British hedge funds are feeling the January chill. Both RAB Capital and New Star Asset Management had bad news about profit and performance last year.

London-based New Star said the troubles related to the credit crunch had impacted its 2007 profit, performance and assets under management. The firm’s assets under management fell 6.5% in the second half to £23.1 billion (US$45.2 billion), as most of its hedge funds, “badly positioned” for credit market troubles, trailed their rivals.

Worse still for the firm, it said in a statement that it is “not optimistic” about this year, and warned that investors should expect further redemptions, especially by European clients in its European funds. Further withdrawals would probably lead to a “significantly lower” operating profit in 2007.

Investors quickly responded, as New Star’s share price plummeted 31% on the news. It is down almost 80% from its July high.

RAB Capital confirmed that its pre-tax profits rose less than 2% in 2007, adding that its performance troubles of the fourth quarter have continued into the early going of 2008.

The firm’s Europe fund is down more than 6% in the first few weeks of the year, while its Special Situations and Energy funds are down as much as 3% each, RAB said on Friday. Still, Michael Alen-Buckley, the firm’s executive chairman, said RAB was “in good shape for 2008” and is still considering opening a U.S. office, as well as others.

RAB had warned last month that pre-tax earnings last year would be essentially flat at £50 million (US$97.8 million). It blamed a big decline in performance fee income—Special Situations lost 7.6% in Q4, while Energy fell 2.6%. But that was offset somewhat by a 38% jump in assets, to US$7.2 billion.

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