Ko, former Bear trader, launches hedge fund

NEW YORK, July 14 Mon Jul 14, 2008 2:56pm EDT

NEW YORK, July 14 (Reuters) - Melissa Ko, a former star trader at Bear Stearns, has formed a new hedge fund called Covepoint Capital with nearly $1 billion in assets, according to a letter the firm sent to investors on Monday.

Ko ran Bear's Emerging Markets Macro Fund, which generated returns of more than 25 percent from 2005 to 2007 through currency, sovereign debt, equity and other investing strategies. New York-based Covepoint has assets of about $925 million, mainly from previous investors in the Bear fund.

Covepoint is the latest hedge fund to become independent from the former Bear Stearns Asset Management (BSAM) division, a collection of funds which held about $27 billion in assets when JPMorgan Chase & Co (JPM.N) bought the crippled investment bank on May 30.

BSAM was battered by the collapse of two credit hedge funds last year that lost about $1.6 billion, a harbinger of the harsh credit climate that continues to rock the markets. The collapse caused investors to flee other Bear funds, including Ko's fund, which lost some $600 million in the aftermath.

In March, star investor James O'Shaughnessy split from Bear and took some $8.8 billion with him, although BSAM continued to invest in the fund. JPMorgan officials have said the bulk of BSAM funds will likely be liquidated or spun off.

A former senior Bear Stearns managing director, Ko's Emerging Markets Macro Fund generated returns of 46.8 percent in 2005; 25.7 percent in 2006 and 25.6 percent in 2007, swelling its assets under management to $2.4 billion at its peak just before the two Bear credit hedge funds collapsed, according to previous investor letters obtained by Reuters.

Lately, however, the fund's performance has flattened. Year to date, it was down 5.14 percent at the end of June.

Ko declined to comment.

Prior to the spin-off in June, the fund held about $1.3 billion in assets. But investors were given the option of exiting, leaving the fund with $925 million post-spinoff.

Under the spin-off agreement, JPMorgan will get an unspecified stream of the fund's revenues for five years, although it is not invested in the fund. Ko began planning the spin-off prior to BSAM's troubles last year, people familiar with the plan said.

The launch of the independent fund comes amid a downturn in hedge fund performance as credit-related troubles at big financial institutions and other problems roil the markets. Fewer hedge funds were launched in 2008 than any year since 2000, according to Hedge Fund Research (HFR), an industry tracker.

But macro investing, which seeks to trade on changes in the world currency, bond and equity markets, is one bright spot amid the general slump in hedge fund performance. Macro funds, on average, returned 7.14 percent in the year through June, HFR said.

Some macro funds have done spectacularly well in this market, including the $6.3 billion Clarium LP, which posted returns of 57.9 percent this year through June, according to an investor letter.

Covepoint's prime brokers include Deutsche Bank, JPMorgan, Goldman Sachs and Morgan Stanley. (Reporting by Dane Hamilton; editing by Jeffrey Benkoe) (Reuters email: dane.hamilton@thomsonreuters.com. 646 223 6161)

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