BlueCrest to shut asset-based lending fund-sources

* Sources say Blue Crest Specialty Asset Finance to close

* Losses, redemption requests force fund wind down - sources

* Lost reported $20 mln in Petters alleged $3 bln scam

By Martin de Sa'Pinto

GENEVA, June 30 (Reuters) - British asset manager Blue Crest is winding down its Specialty Asset Finance Fund after losses and redemptions forced the fund to close many positions at a heavy loss, sources familiar with the fund told Reuters.

BlueCrest declined to comment on the fund.

Three industry sources said the fund, which had assets of $200 million late last year, is one of many using an asset based lending (ABL) strategy to be vexed by redemptions this year, with leveraged funds such as BlueCrest's hit particularly hard.

"It's an open secret the fund is winding down, I'm surprised I haven't seen anything written about it yet," said one fund of funds manager. Another source, who manages an ABL fund of funds similar to the BlueCrest fund, said funds using the strategy have had redemption requests for up to 80 percent of their assets.

Most hedge fund strategies saw asset outflows during the financial crisis as investors fled to safer and more liquid asset classes such as treasuries.

This was particularly awkward for ABL funds, whose assets are often tied up and difficult to liquidate--the strategy involves making business loans for projects such as factory expansions, with the loans secured against the business assets.

"Blue Crest saw redemptions rise after it lost money in the Petters (alleged) fraud, and its leverage made things worse. It has had to deleverage fast to meet redemptions, forcing the fund to sell assets into a bad market and accentuating losses," the source at the ABL fund said.

U.S. group Petters Co Inc went bankrupt in October amid allegations its founder swindled investors out of about $3 billion through a Ponzi scheme. In December, the InvestHedge monthly newsletter reported that Blue Crest lost $20 million in the alleged Petters fraud. Several other ABL fund of funds were also invested in Petters via one or more of that company's five or six ABL funds.

InvestHedge also reported that officials at BlueCrest said Specialty Asset Finance, registered as a mutual fund in the Cayman Islands in June 2007, was the only BlueCrest fund to invest in Petters, and that the fund only accounted for 1.25 percent of BlueCrest's assets, $16 billion at that time.

BlueCrest said in April its assets were $11 billion. The company is 25 percent-owned by Man Group (EMG.L) Holdings, and its BlueCrest AllBlue (BABS.L) fund is listed on the London Stock Exchange.

ABL funds proliferated after the onset of the credit crisis, when bank lending to companies dried up.

However, the Petters scandal, continuing turmoil in the financial markets and an investor scramble for liquidity in late 2008 and early 2009 have caused many of them to pull back from illiquid strategies such as ABL. (Editing by Simon Jessop)