Strategic Value Gives Up On Market-Neutral Fund

Apr 28 2008 | 7:13am ET

Strategic Value Partners is closing its $600 million market-neutral hedge fund because it expects the strategy to be on the ropes for at least five years.

The Greenwich, Conn.-based firm told investors that its market-neutral fund “is simply not viable in today’s environment” in a letter from founder Victor Khosla obtained by Bloomberg News. Investors in that fund, the Credit Opportunity Fund, which shed 6.4% in the first quarter, have the option of moving their investment to Strategic Value’s $4.4 billion distressed securities Restructuring Fund.

Investors who choose that option—Khosla indicated that two-thirds of Credit Opportunity clients are interested in such a move—will have performance fees waived until it recoups their loss in Credit Opportunities. Restructuring fell 2.3% in the first quarter.

Khosla, whose firm is raising funds for both Restructuring Fund and its private equity Special Situations Fund, said distressed debt offers a very attractive long-term opportunity.

“The nine months leading up to March 31 have seen a substantial sell-off in the credit markets, setting up that once-in-a-7-to-10-year investment opportunity,” he wrote.

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