Hedge fund manager Absolute Capital Management, which has struggled to recover from the abrupt exit of chief investment officer Florian Homm last S
Hedge fund manager Absolute Capital Management, which has struggled to recover from the abrupt exit of chief investment officer Florian Homm last September and the subsequent discovery that many of his investments were in hard-to-value US micro-stocks, will have less than EUR100m in assets after the lock-up of four funds ends at the end of this month. At the time of Homm’s departure the firm had total assets then valued at some USD3.2bn.
Absolute Capital has announced the close of two more funds, halving the firm’s fund roster to four, although it says that a repositioning of the investment strategies of several funds has delivered above-average performance this year. Nevertheless, two funds will lose more than half their assets once investors are allowed to redeem their investments.
The discovery of the illiquidity of many of the investments in the firm’s eight equity funds (its Argo fixed-income business, acquired in January 2007, was spun off again to Absolute Capital’s investors earlier this year), as well as a rush by investor to redeem their holdings following Homm’s exit, obliged the firm to restructure four of its funds.
The restructuring plan involved the creation of side-pocket portfolios within the Absolute Octane, Absolute East West, Absolute Catalyst and Absolute Return Europe funds, together with the imposition of a 12-month lock-up on the funds’ main portfolios.
In January this year Absolute Capital closed the Absolute India Fund, which, despite excellent performance, had become too small to continue trading. More recently, the firm decided to close the Absolute Activist Value Fund as of October 31.
The firm says that over the past 10 months it has completed the transition of the Absolute European Catalyst, Absolute Return Europe and Absolute Germany funds to European mid- to large-cap trading strategies.
The Absolute Germany Fund has returned 18.19 per cent and Absolute Large Cap 10.57 per cent over the first nine months of this year, a period during which the average hedge fund has lost around 10 per cent.
The A class shares of Absolute European Catalyst have lost 3.85 per cent and those of Absolute Return Europe have fallen by 10.81 per cent over the first three quarters, although the firm says this performance was affected by pre-September 2007 legacy positions that the funds have since disposed of or are in the process of doing so.
Absolute Capital says its funds’ trading performance over the first two weeks of October is broadly flat, after it decided on September 26 to move almost all of the funds’ A class portfolios to cash, thereby escaping the subsequent precipitous decline in equity prices.
With the lock-in period on the A class portfolios of the Absolute Return Europe, Absolute European Catalyst, Absolute East West and Absolute Octane about to end, the firm has reviewed its fund range in the light of investor redemption requests and has decided to close the Absolute East West and Absolute Octane funds at the end of October.
As of next month, Absolute Capital will have EUR20.1m in the Absolute Germany Fund, down fractionally from its EUR20.4m in assets at the end of September, EUR9.0m in the Absolute Large Cap Fund (95 per cent of the September total), EUR23.1m in the A class portfolio of the Absolute European Catalyst Fund (31 per cent of the EUR77.6m September total) and EUR45.0m in the A class portfolio of the Absolute Return Europe Fund (41 per cent of the EUR110.8m in assets in September).
The firm says its restructuring plan launched a year ago envisaged a reduction in assets under management once the lock-in period ended and that many of the changes necessary to operate with the business’s reduced size have already been taken.
Its directors believe the firm can operate profitably and “in time attract new investors under its revised trading strategies”. Absolute Capital’s funds will reopen to new subscriptions in November as their net asset value reporting is expected to be back up to date by the end of this month.
The firm plans to rebranding and relaunch its four remaining equity funds “in anticipation of demand from investors seeking to re-enter European equity markets through conservative, risk-controlled equity strategies after the recent unprecedented period of extreme market volatility and declining equity values”.
