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Turtle hedge fund to restructure after losses

Date: Wednesday, November 5, 2008
Author: Laurence Fletcher, Reuters.com

LONDON (Reuters) - The Turtle Fund, an $80 million Swiss-based hedge fund trading volatility, has stopped trading and will let investors exit after sharp losses, following a disagreement between the fund's managers. In a note to investors, seen by Reuters, the fund said it lost 8.7 percent in September and 14 percent in October -- its worst-ever monthly performance.

That took year-to-date returns, which had been in positive territory, to around a 13 percent loss.

On October 10 alone, there was a 14-percent loss, which the note said was caused by a "disagreement within the team concerning the hedging strategy."

"Our third partner ... by virtue of his majority stake in the company revoked our trading authority and liquidated all existing positions at the ... worst possible moment, arguing to protect his clients from further losses," it said.

The fund is now fully in cash and has withdrawn its contract with Lugano-based fund manager DFL Financial Services, it said.

It will now allow investors to exit the fund and plans to adopt a new automated risk management system.

Michel Legler, a director of DFL who is set to leave the firm, told Reuters he plans to continue to run the Turtle Fund, which he estimates will shrink to $8-10 million in assets, because such funds will prosper in volatile markets. "I will reorganize and relaunch it again. It's a good product ... Volatility won't disappear quickly." The fund's losses come during a period of extremely high market volatility as the credit crisis intensified, exacerbated by forced selling from hedge funds.

The average hedge fund lost nearly 20 percent in the first 10 months of 2008, according to Hedge Fund Research's HFRX index.

(Editing by Elaine Hardcastle)