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Hedge fund Sowood hurt by credit market problems

Date: Friday, July 27, 2007
Author: Reuters.com

BOSTON, July 27 (Reuters) - Hedge fund Sowood Capital, which invests money for Harvard University and other prominent clients, has lost 10 percent this year amid growing problems in the credit markets, a person familiar with the fund said on Friday.

The fund suffered an 8 percent loss in July after reporting a 5 percent drop in June. That helped wipe out the gains from early in the year, the person said. Last year the fund reported double-digit gains.

A Sowood spokeswoman declined to comment.

The Boston-based fund is run by Jeffrey Larson, who left Harvard Management Company, which runs the university's $30 billion endowment, in 2004 to set up his own firm. At Harvard Management, Larson oversaw foreign equities.

Larson's pedigree plus excellent risk controls made him popular with conservative clients like Harvard, which put in roughly $700 million, and other large endowments that funneled increasingly more money into the loosely regulated hedge fund industry in the last years.

The prominence of the fund, which invests in stocks and bonds, makes the losses amid growing credit market problems especially noteworthy, industry analysts said.

Speculation quickly spread through the bond market that the firm might be in trouble, but the person familiar with the matter said that it has its money locked up for the year and is not facing any crisis. However, it has sold some positions to raise cash, the person said.

Sowood quickly raised several billion dollars in assets and kept a studiously low profile ever since, declining to report monthly performance numbers to industry performance trackers.

The fund had roughly $6 billion in assets and several dozen employees at the end of last year and recently spun off its private equity business, which had also become very popular.