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Hedgeweek Comment: Absolute trouble

Troubled hedge fund Absolute Capital Management has closed one of its hedge funds and its office in Mallorca as poor performance and a big loss for the year cast a shadow over the firm's efforts to reinvent itself following the abrupt exit of co-founder Florian Homm last September.

Aim-listed Absolute Capital, which is legally domiciled in the Cayman Islands but operates from an office in Zug, Switzerland, yesterday reported a pre-tax loss of EUR32.9m and warned that possible legal claims over losses suffered by its hedge funds could leave it without the resources to keep trading.

The hedge fund manager could see its assets under management, which were estimated at some EUR706m at the end of April, reduced once a lock-up period for several funds ends in November, although the company says it has received informal indications from various large investors that they are 'amenable to remaining invested' in its products. Absolute Capital has closed its office in Mallorca, where Homm had based himself.

Nevertheless, the firm's executives say they remain optimistic. 'There's a business here,' said chief executive Glenn Kennedy. 'In spite of what happened with Florian, there are still a number of very loyal investors in the group.'

Chairman Jonathan Treacher added: 'From January to June, performance has been okay. We haven't been trying to shoot the lights out. We've been trying to stabilise the business and focus on assets.'

Perhaps this goes to show how much influence one person can have on a company's performance. Since Homm left, it has been tough going for the firm, which uncovered up to USD550m in investments in highly illiquid US penny stocks following his departure. No direct replacement has been found for Homm. Treacher suggested AbCap would look for more new managers, possibly to be incentivised with equity awards, once the business had recovered further.

Still, the role played by Homm - whose departure began a downward spiral for Absolute Capital's share price - may not have been as significant as the timing of his exit, just two months after the onset of the credit crunch.

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