Abria closes fund |
Date: Tuesday, June 5, 2007
Author: Boyd Erman, The Globe and Mail
Abria Alternative Investments Inc. has shut the door on its flagship
fund of hedge funds, blaming a spiral of redemptions that began with the
implosion of Amaranth Advisors LLC last year.
The Abria Diversified Arbitrage Trust, which at its peak
had assets of more than $150-million invested in various hedge funds, began its
plunge after investors began demanding their money back in the wake of a loss
of more than 8 per cent in September because of an investment in Amaranth.
In a bid to fund redemptions and stem further losses from Amaranth, Abria's
managers sold two positions at a loss in December, leading to another monthly
decline, this time 5 per cent, that fuelled demands from investors for their
money back. Investors had to give 100 days notice for redemptions.
With the fund shrinking rapidly, and total assets headed toward $20-million
as the redemptions piled up, it made little sense to go on, said Henry Kneis,
chief executive officer of Abria.
"Clients voted with their feet," Mr. Kneis said, adding that with
a small asset base the costs of running the fund became prohibitive for
investors, even though Abria tried to cut back staff to rein in expenditures.
"It was clear that assets were just continuing to leave. It was just
getting too expensive for unitholders to bear the fixed costs of running the
fund."
Funds of funds are designed to protect investors from volatility and blowups
in any single hedge fund by spreading money over many funds. In fact, Abria
took its name from the root word "abri," which means shelter in
French and protection in Latin.
But Abria's funds never got big enough to spread their risks over a big
enough group of underlying investments, Mr. Kneis said. According to an
investor in the flagship fund, there were fewer than a dozen positions.
About 95 per cent of the money in the Diversified Arbitrage Trust came from
individual investors, according to Mr. Kneis, with the remainder put up by
institutions. Under Canadian rules, only sophisticated or relatively wealthy
individual investors are allowed to put money in hedge funds. That's a small
and competitive market in
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