Tosca Begs Investors Not To Abandon Flagship

Nov 13 2008 | 12:54pm ET

The second and third stages of grief are denial and bargaining. Toscafund Asset Management chief Martin Hughes demonstrated both in an extraordinary letter to his investors.

Hughes pleaded with investors not to abandon the firm’s flagship hedge fund, which is down 66% year-to-date after plummeting 20% last month and 35% in September, according to the Financial Times. The firm last month announced a plan to split the £2.5 billion (US$3.8 billion) portfolio into a continuing share class and a redeeming share class. If too many investors choose the latter, it could spell the end of the Tosca Fund.

First, denial: Hughes blamed the fund’s woes on market vultures looking for a “free lunch.”

“Stories of liquidation and all sorts of negativity in the market regarding our positions are designed to flush out investors at a cost to future returns and to the benefit of those prepared to pick up the free lunch,” he wrote.

Next, bargaining: Hughes implored investors to give him another chance—and another one-year lock-up—as he tries to turn things around. He wrote that the portfolio has “many embedded value create opportunities.”

The request for confidence was not done “as a point of arrogance,” Hughes wrote. “Far from it as we are concerned with the hurt we have inflicted—but as a matter of information to minimize the complaints if redemption requests prove ill-advised.”

Hughes wrote that Tosca’s “daily ritual of selling and avoiding ‘cheap’ positions until such time as Tosca is forced to dispose of its holdings will continue until we are able to clarify our intentions.”

The next stage of grief? Depression.


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