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AM Hedge Fund Said to Lose 6.6% in July as Volatility Plummets

Date: Thursday, August 19, 2010
Author: Saijel Kishan and Jeff Kearns, Bloomberg

AM Investment Partners LLC, the hedge-fund firm that said in March it would merge with BAM Capital LLC, slumped as much as 6.6 percent in July, according to an investor, as stock-market volatility plunged the most in 16 years.

The firmís BAM Opportunity Fund lost 9.5 percent this year through last month for Class C clients, said the investor, who asked not to be named because the information is confidential. Mickey Mandelbaum, a spokesman for New York-based AM Investment, declined to comment.

Volatility hedge funds, whose managers aim to profit from price swings, declined as the Chicago Board Options Exchange Volatility Index, or VIX, fell 32 percent in July for its biggest monthly drop since April 1994. The VIX measures the cost of using options to protect against losses in the Standard & Poorís 500 Index, the U.S. stock benchmark that rallied 6.9 percent last month for its first gain since April.

ďThe volatility market has undergone a tremendous amount of change yet it doesnít have much history, and consequently itís more unpredictable than mature markets and less well understood,Ē said Michael McCarty, managing partner at Differential Research LLC in New York, which advises investors on volatility strategies.

Volatility funds lost an average of 2.6 percent last month and 4.9 percent this year, based on the Newedge Volatility Trading Index. Hedge funds globally gained 1.7 percent in July and 1.3 percent this year, according to Hedge Fund Research Inc.

AM Investment was founded by former Deutsche Bank AG executives Mark Friedman and Adam Stern in 2001. The firm said in March that it planned to combine with New York-based BAM Capital, founded by Ross Berman and Hal Mintz.

Asset Decline

The BAM Opportunity Fund for clients who invested before this year lost 6.4 percent in July and 6.6 percent in 2010, according to the investor.

BAM Capitalís assets had shrunk to about $300 million in March from a peak of about $1 billion in 2008 because of investment losses and client withdrawals. The firm, set up in 2002, last year created a separate fund for hard-to-sell assets that would be liquidated over time, according to a November investor letter.

AM Investment also trades convertible bonds, or securities that can be converted into stock at a preset price. Its convertible arbitrage hedge fund rose 0.5 percent in July and 2.6 percent this year. Convertible arbitrage funds climbed 2.5 percent in July and 4.8 percent this year on average, according to Chicago-based Hedge Fund Research.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net and Jeff Kearns in New York at jkearns3@bloomberg.net.