London-listed hedge fund manager Absolute Capital Management has unveiled plans to spin off its emerging market credit fund business, Argo Capital, as an independent entity.
London-listed hedge fund manager Absolute Capital Management has unveiled plans to spin off its emerging market credit fund business, Argo Capital, as an independent entity. The move aims to disassociate the Argo business, which was acquired by Absolute Capital as recently as January last year, from the European hedge fund manager’s recent problems.
The departure of founder and co-chief investment officer Florian Homm led to the company’s share price plummeting more than 90 per cent, especially after it emerged that many of the Absolute Capital equity funds contained hard-to-value small-cap stocks, eventually forcing investors in several funds to accept extended lock-ups.
Absolute Capital has now written to shareholders proposing to turn the alternative emerging markets manager into a separate business, Argo Group. Under the proposal shareholders will retain their existing Absolute Capital holding, but receive the same number of ordinary shares in Argo.
‘We have carefully considered the best way forward for the Absolute Capital group following the events of September 2007,’ said chief executive Jonathan Treacher. Coincidentally the former owners of Argo Capital, Andreas and Kyriakos Rialas now own 33 per cent of Absolute Capital after the cash-and-shares deal they agreed to at the beginning of 2007 had to be restructured.
Meanwhile, Citi is looking at restructuring Old Lane, an alternative fund manager co-founded by Vikram Pandit, now Citi’s chief executive, and which was acquired by the group last April in what now looks like a rather expensive USD800m headhunting exercise. Nearly all investors unaffiliated with Citi have requested to redeem their money from Old Lane’s multistrategy fund, the group said in a regulatory filing.
The performance of the Old Lane funds, which had assets under management and equity commitments of USD4.5bn at the time of the acquisition, has been disappointing since, and Citi wrote down USD200m of intangible assets linked to the acquisition in the first quarter.
Hedge funds that have been underperforming or have had an impact on the parent company’s share price are being streamlined or restructured in order to reposition them in the market and perhaps provide them with the flexibility required amid the ongoing credit crunch and volatile financial markets. Looking at all the alternatives might turn out to be a very smart decision.
