Federal Reserve’s Plan Fails To Help Hedge Funds On Brink Of Collapse
And then the inevitable happens.Â
In this case, attempts by the US Federal Reserve to ease America’s credit crisis with a $200 billion collateral lending facility apparently has failed to stop the collapse of several hedge funds with assets of more than $4 billion.
A total of seven funds were frozen in one month – and more may be on the horizon. The funds’ demise is viewed as evidence that the Federal Reserve’s plan to allow lenders to swap their risky mortgage-backed bonds for safer Treasury debt will have no impact in the long term of solving the country’s credit crunch. Those fears were reiterated on Wall Street when the dollar fell to a new low against the euro and sterling, with the European currency reaching $1.55 for the first time.
Hedge Fund Developments
Drake Management, a New-York-based money manager, recently told investors that its $3 billion Global Opportunities Fund may be winding down. In a letter to investors, Drake wrote that closing the fund is an attempt to maintain and maximize value for investors during the current market downturn.  In 2007, the fund lost 25 percent, and already has blocked investors from withdrawing their cash.
Two other funds also are under consideration for closing by Drake: the Drake Low Volatility fund and the Drake Absolute Return. Both funds lost almost one-sixth of their value last year.
The founders of Drake Management, Anthony Faillace and Steve Luttrell, have reportedly informed investors that the closure of their fund was one of several options under consideration. Another arrangement might be created in which investors could choose to be repaid over the next 18 months or have their capital rolled over into a new fund.
In other hedge fund news, Amsterdam-based GO Capital Asset Management has frozen its $881 million Global Opportunities hedge fund, preventing investors from withdrawing their capital. And the Dutch Bank, ING, has frozen two investment trusts in New Zealand that were highly exposed to mortgage-backed bonds. The two funds held assets worth 275 million between them, according to ING.Â
It looks like the global credit crunch just keeps gaining steam.
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