That was fast. Sowood Capital told its investors on Monday that after losing over 50% of its value on bad bond bets that it’s closing its two funds down and will unwind in an orderly fashion. It’s Alpha Fund Ltd plummeted 57% during July, while its Alpha Fund LP tumbled 53%. The Boston based funds, run by former Harvard Management’s Jeff Larson, were down 56% and 51% on the year, respectively. Usual suspect Citadel, came to the rescue and vultured up most of the assets of the felled firm.
Sowood Capital Management LP lost 50 percent in July, or about $1.5 billion, the biggest hedge-fund manager to collapse in the meltdown of the corporate bond and loan markets.
Sowood sold most of its assets to Citadel Investment Group LLC and will unwind its two funds, Jeff Larson, founder of the Boston-based firm, told investors in a letter yesterday. Sowood sought a buyer when it couldn’t meet lenders’ demands for more collateral. Terms of the sale to the Chicago-based hedge-fund manager weren’t disclosed.
“The transaction enabled us to avoid anticipated forced sales at extreme prices,” Larson, a former Harvard University endowment manager, said in the letter. “The weakness in corporate credit, particularly focused on loans and loan credit- default swaps, accelerated sharply during the week of July 23.”
Speculation spread through bond markets on
Friday that a Boston-based fund was in deep trouble, but by week’s end, a person
familiar with Sowood’s operations said it had lost 8 percent in July and had met
its margin calls.That message clearly changed over the
weekend when Larson, who had launched the fund with great fanfare in 2004,
decided the only way out was to transfer a portion of the portfolio to Citadel
Investments Group, a hedge fund with roughly $14 billion in assets under
management."Citadel offered the only immediate
and comprehensive solution," Larson wrote to clients. Citadel rescued
failed hedge fund Amaranth Advisors’ energy portfolio last year.Larson blamed the fund’s severe and sudden
losses on sharply wider credit spreads for companies’ debt that came without a
corresponding move in equity prices and was exacerbated by a marked decline in
liquidity.
Sowood Funds Lose More Than 50% as Corporate Credit Bets Plunge – Bloomberg
Hedge fund Sowood suffers 50 pct loss, to wind down – Reuters
Tags: Hedge funds
