A Hedge Row at Highland

Date: Friday, April 17, 2009
Author: Marl DeCambre, New York Post

Hedge fund Highland Capital is scrambling to quell a dispute among investors grousing about who gets what during the liquidation of the firm's imploded flagship fund.

Dallas-based Highland told investors during a conference call last week that it would consider bringing on a third-party mediator to help calm the frayed nerves of investors in the Highland Crusader Fund, which blew up as credit markets ground to a halt after the fall of Lehman Brothers.

Sources told The Post that a third party is being brought in to figure out the best way to pay back investors who have threatened to slap Highland with a lawsuit if they aren't first in line to receive cash when the fund's highly illiquid leveraged loans and other credit assets are sold off.

Investors who redeemed their stakes before June 30 believe they should be first in line to get their dough back, while those who asked for their money to be returned after that date argue that the rapid, unprecedented collapse of the financial markets dictates that everyone be treated equally.

Such disputes over hedge-fund liquidation plans and the distribution of assets are now more commonplace as investors sift through the rubble of arguably the most tumultuous period in hedge-fund history.

According to industry newsletter Hedge Fund Alert, Highland has proposed a compromise that would see investors who left early get the first $150 million in distributions depending on the size of their stake. The remaining balance would be divvied up among all investors equally.

A Highland spokeswoman declined to comment.

At one point, Highland, founded by James Dondero and Mark Okada, managed assets of $40 billion through a number of hedge funds and special investment vehicles until the credit crisis.

Currently, a number of Highland's hedge funds, which tended to focus on debt investing, suffered from volatility in the credit markets, and are locked in various legal disputes.

In January, the Amarillo, Texas-based Mary E. Bivins Foundation sued Highland, charging that it reneged on a $1.8 million redemption request filed before the closing of the Highland Credit Strategies Fund, which was shuttered at the same time as the Crusader fund.