Caxton Caves On Hedge-P.E. Convergence

Jan 24 2008 | 8:22am ET

Hedge fund-private equity convergence has been the talk of the alternative investments town for the past several years. But the credit crunch has at least one prominent hedge fund diverging from the buyout business.

Caxton Associates has told investors its flagship hedge fund will stop making strategic—read: private equity—investments, and has rolled out a new share class that excludes even the existing long-term investments, MarketWatch reports.

The move is reportedly not a reflection of the performance of Caxton Global Investment’s strategic investments, but of growing discomfort among investors with having their capital tied up in illiquid, long-term investments.

Caxton told investors in a Jan. 1 letter that it will not pursue any new strategic investments. Investors wishing to redeem their investments will receive all of their money save that portion which is in long-term investments. Instead, they’ll receive new “FI” shares, which represent only the strategic investments, which made up less than 8% of the fund’s net asset value, Caxton said. The new shares also include a $235 million strategic investment reserve.

In addition, newcomers to Global Investments need not put a portion of their money in the firm’s private equity pocket: A new T share class will only include the fund’s main strategy, which focuses on short-term currency, financials, commodities and securities trading.

Global Investments returned an anemic 1.14% last year, while the firm’s Alpha Equity Fund boasted a 12.18% gain.

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