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Epic Capital shuts flagship hedge fund

Date: Tuesday, October 28, 2008
Author: Boyd Erman and Andrew Willis, Globe and Mail

Epic Capital Management Inc. is shutting down its flagship hedge fund after a slump in returns and a spate of redemption requests by investors.

The Toronto-based firm had seen its assets tumble from $300-million to $200-million as markets crashed and investors fled, and decided that giving remaining investors their money back was the prudent move, said chief executive David Fawcett.

Epic focused on mid-sized Canadian companies, trying to find ones that were underpriced, but that strategy couldn't protect the firm from a meltdown in Canadian markets. Epic's main fund had fallen about 38 per cent as of the end of September, according to the firm's Web site, and many investors were asking for their money back.

“We wanted to do it while we could and didn't have a gun to our head,” said Mr. Fawcett, who added he expected a “pretty orderly unwind.”

If investors approve the plan to close the fund, they should get about 80 per cent of the money they are entitled to by early next year, and the remainder as Epic is able to unload tougher-to-sell investments, he said.

The firm, which consisted of three partners and six employees, is letting five of the workers go.

The fund had already sold most of its liquid stocks and had moved 75 per cent of its assets into cash, helping it to meet redemptions, Mr. Fawcett said.

The problem was that a chunk of the remaining capital was in illiquid private-placement investments, which are tough to sell in current markets. That meant that if Epic kept going, investors who stuck it out would have owned too high a proportion of those investments, Mr. Fawcett said.

As a long-short hedge fund, the firm could employ short-selling to protect against losses, but that strategy didn't offset the massive drops in stocks.

“You really thought if you got in a down market you would have shorts that would help you,” Mr. Fawcett said. “It was such an odd, all-pervasive, global situation that it caught us and the world by surprise.”