Zwirn to Close Hedge Funds After Large Redemptions

Date: Friday, February 22, 2008
Author: Jenny Strasburg, Bloomberg

D.B. Zwirn & Co., the investment firm that admitted last year to improper accounting, will liquidate its two largest hedge funds after being flooded with more than $2 billion in client redemptions.

Zwirn will shut the onshore and offshore versions of its Special Opportunities Fund after delays in the New York-based firm's 2006 financial audit caused ``a large number of investor redemptions,'' according to a letter sent today to clients. The funds have about $4.2 billion in assets.

The firm, started by Daniel Zwirn in October 2001, expects to update investors in March with plans to return money held in part in ``a highly diverse portfolio of illiquid investments in multiple countries,'' according to the letter, a copy of which was obtained by Bloomberg News. It may take as many as four years to wind down the funds.

The hedge-fund manager told investors in early 2007 that an internal investigation had found improper financial transfers and accounting of expenses. It took until early December for an independent auditor, PricewaterhouseCoopers LLP, to report that Zwirn's financial statements conformed to generally accepted auditing standards, according to a copy of a Dec. 3 audit obtained by Bloomberg News.

D.B. Zwirn was ``the unfortunate victim of misconduct by certain former employees,'' according to an e-mailed statement from spokesman Shawn Pattison. Accounting issues were ``thoroughly investigated'' and current managers of the firm were ``found to be above reproach,'' the statement said, without naming the former employees.

Corporate Debt

The client letter was reported earlier by the Financial Times.

The Special Opportunities funds invest in corporate and real-estate debt, industrial assets and securities of companies going through mergers and other reorganizations, according to the PricewaterhouseCoopers audit. The funds also make longer- term private-equity investments in companies and real estate.

The firm plans to continue managing about $1 billion in assets outside of the funds, according to the letter.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net