Hedge fund firm Avenue Capital posts losses in June

By Svea Herbst-Bayliss

BOSTON, Aug 15 (Reuters) - Avenue Capital, a $20.5 billion hedge fund firm that specializes in credit strategies, posted its largest monthly losses in six years in June, the firm told investors.

The New York-based firm's $1.5 billion Avenue International Ltd fund fell 2.68 percent in June while its $577 million Avenue Investments LP fund declined 2.99 percent, according to performance numbers obtained by Reuters.

A spokesman for Avenue declined to comment.

The declines mark the biggest monthly drop since July 2002 and end the back-to-back gains the funds posted in April and May when loosely regulated hedge funds generally recovered from their terrible start to the year.

Many investors in the $2 trillion hedge fund industry had expected to see some losses in June because financial stocks tumbled during the month amid downgrades by Wall Street analysts and mounting fears over poor earnings reports.

But the news is unsettling at a time many pension funds and other large investors are trying to select new hedge fund managers to help shore up lackluster investment returns.

New York-based Avenue Capital, founded in 1995 by distressed debt specialist Marc Lasry, ranks among the industry's most prominent players and has recently raised $6.1 billion for "special situations" trading strategies.

But like many other hedge funds, which are not required to publish their performance data, Avenue guards these numbers closely and any information is considered of great interest to investors and other managers.

Avenue's $903 million Avenue Europe International Ltd fund slipped 1.02 percent in June, less than the 1.18 percent decline it posted in March. The $392 million Avenue Europe Investments LP fund lost 0.89 percent in June, less than the 1.14 percent it lost in March.

June's bigger losses in the Avenue Investments and Avenue International funds came on top of declines in March, February and January and leave both funds on course to post their first loss for a year since 1998, the year hedge fund Long Term Capital Management collapsed.

Still for the month, both funds beat some industry benchmarks. The Altman Combined Index was down 4.2 percent while the Credit Suisse Distressed Index was off 13.43 percent.

In the first half of the year, the Avenue Investments fund lost 4 percent after fees while the Avenue International fund was down 3.19 percent net of fees. The average hedge fund fared much better than the Avenue funds, losing only 0.75 percent during the first half of the year, according to data from Hedge Fund Research. (Additional reporting by Dane Hamilton in New York; Editing by Brian Moss)