Absolute fights for survival as $100m exits

Date: Thursday, September 20, 2007
Author: Miles Costello, Timesonline.co.uk

New chief executive Jonathan Treacher says he is considering all options, including calling in administrators.

Absolute Capital Management, the $3.25 billion London listed hedge fund, was fighting for its survival today after investors rushed for the exit in the wake of the departure of Florian Homm, its co-founder and former chief investment officer.

Absolute said that it would be forced to freeze some of its $2 billion of equity funds after it received $100 million of redemption notices yesterday following Mr Homm's highly charged public exit.

And it admitted that as much as $500 million of "event driven" equity investments managed by Mr Homm had been channelled into obscure American companies that could be difficult to exit and might realise a lot less than their mark-to-market value.

Shares in Absolute, which only listed last March, slumped 48 per cent today, trading 57p lower at just 61.5p. The hedge fund's market value has collapsed from £389 million at the beginning of the week to less then £65 million today.

Jonathan Treacher, the chief executive, told The Times that Absolute would spend the coming days trying to convince investors not to withdraw more funds.

He said it was not clear how many investors were trying to redeem cash today, although he acknowledged that "people have been calling up all over the place" in an effort to establish what was going on.

Mr Treacher, who has only been in the job since mid-August, said Absolute's future would become clear "over the next week". He admitted that if Absolute were to suffer "a big run of redemptions" it would be forced to sell off assets to meet repayments.

"What you want to avoid is being a forced seller of assets. The most important thing we can do is preserve investors' money in the funds," he said.

"We are looking at all options. Our first is to go to the people who are investors in the funds," he said. Mr Treacher, who stressed that "the ship has not sunk".

He said options include freezing the funds to prevent further withdrawals and if necessary calling in the administrators to arrange an orderly sale of the assets.

Sandy Chen at Panmure Gordon slashed his price target on Absolute from 750p to 150p, after the hedge fund proposed a restructuring of the equity funds so that the illiquid assets were channelled into a "side pocket" share class.

"In current markets, we do not think approval of the equity funds' restructuring, especially the 12-month lock-in, can be a foregone conclusion, making it possible that ACMH will face major redemptions," Mr Chen said.

"We also highlight the risk of investor lawsuits as an unquantifiable threat to earnings."

Mr Chen said the valuation problems "could prove fatal for the equity funds".

Absolute operates a total of $3.2 billion of assets under management and stressed that more than $1 billion of this was unaffected.

Mr Treacher said he had not been in contact with Mr Homm in recent days and suggested that legal against against its former investment star was a possibility.