Tudor’s BVI Suspends Withdrawals, Plans Split Into Two Funds

Date: Monday, December 1, 2008
Author: Katherine Burton and Saijel Kishan, Bloomberg

Tudor Investment Corp., the firm run by Paul Tudor Jones, temporarily suspended redemptions from the $10 billion BVI Global Fund Ltd. as it splits the hedge fund into two, according to a person familiar with the matter.

Tudor is planning to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, said the person, who asked not to be identified because the information is private. BVI Global, which started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Emerging-markets securities have fallen as commodity prices plunged and investors shunned riskier assets on concern the global economy is entering a recession. The MSCI Emerging Markets Index has dropped 58 percent this year.

“Creating a separate fund will give the original fund the opportunity to generate better returns minus the toxic assets that have acted like a sea anchor,” said James Chirnside, chief investment officer at Sydney-based Asia Pacific Asset Management Pty Ltd., which invests in hedge funds.

Steve Bruce, a Tudor spokesman, declined to comment.

Investors have asked to pull 14 percent of their money from BVI Global as it lost 5 percent this year through November, said the person. That compared with a 2.25 percent gain through Nov. 24 by an index of similarly managed funds compiled by Hedge Fund Research Inc.

Investors to Vote

Tudor, which oversees $17 billion, is asking BVI Global investors to approve the plan to split the fund in the next two months. Clients would have their money allocated between BVI Global and Legacy based on the division of assets, said the person. Tudor wouldn’t be able to charge investors a performance fee until the Legacy assets regained their high watermark, or peak value. The firm would sell off the assets in Legacy next year and return money to clients.

Jones, 54, told clients in August that Jim Pallotta, head of equities, is leaving to start his own firm. Pallotta will keep the Raptor Global Fund that he runs out of Boston from January. The fund lost 16.5 percent this year through Nov. 19, according to investors.

22% Annual Gains

BVI Global, which has posted average annual returns of as much as 22 percent since inception, will focus on macro investing, a strategy that seeks to profit from broad economic trends by trading stocks, bonds and other securities, the person said. As of Oct. 31, the fund had 62 percent of assets in macro investments, while 30 percent was in equity strategies and 8 percent was in credit, event-driven and fixed-income arbitrage trades, according to an October client letter.

The firm’s Tensor Fund Ltd., which manages about $1 billion, returned about 34 percent this year through Nov. 19, while Tudor Futures, managed by Jones, gained 21 percent, the person said.

The hedge fund industry may shrink as much as 45 percent by the end of this month to $1.1 trillion from its peak of $1.9 trillion in June because of investor redemptions and market losses, Morgan Stanley analyst Huw van Steenis said in a Nov. 24 report.

Hedge funds have posted losses averaging 22 percent this year through Nov. 24, according to Chicago-based Hedge Fund Research’s HFRX Global Hedge Fund Index. Investors such as pension funds and university endowments are pulling their holdings from hedge funds after they “over-committed” to private equity investments, van Steenis said.

Hedge funds are private, largely unregulated pools of money whose managers can buy or sell any assets and participate substantially in profits from investments.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net