Bubble, Bubble Hedge Funds In Trouble

Date: Tuesday, October 31, 2006
Author: Dailyii.com

Trouble is bubbling up for two more hedge funds. First, hot on the heels of Amaranth Advisors meltdown comes word that a New York-based hedge fund is calling it quits, but not because of an energy-bet blowout. According to The New York Times, Archeus Capital Management, which just a year ago had about $3 billion AUM is down to $700 million and will likely returns all its money to investors by Dec. 31. The problem, according to a letter to investors by founders Gary Kilberg and Peter Hirsch, blamed their woes on dismal record-keeping by the firm's administrators. This failure, and their subsequent inability to properly re-reconcile the fund's records, led to a series of investor withdrawals from which we have not been able to recover. Not that the fund was soaring anyway. Archeus, which the founders say grew 18.5% since July 2005, was off 1.9% this year, certainly no inspiration for investors, especially since the percentage trails leading stock market indices. Signs of trouble appeared earlier this month, when Archeus announced it was closing its London operations. Meanwhile, New York-based D.B. Zwirn is finding itself defending the use of client fees charged by one of its executives. The $5 billion hedge fund, reports The New York Post, pow-wowed by phone with some of its top investors over the weekend concerning internal financial controls as they discussed how a former finance executive with the fund inappropriately expensed items to its investors over a number of years. A source told The Post that these conference calls also discussed whether internal accounting problems also affected ?issues that directly affect client capital, such as valuations and asset allocation, but a source reportedly said valuations were not affected.