(Adds background on hedge fund problems, byline)
By Dane Hamilton
NEW YORK, March 5 Peloton Partners LLP, a
London-based hedge fund manager that formerly held nearly $3
billion in assets, is liquidating its two funds and shutting
down, the firm told investors on Wednesday, according to two
people familiar with the situation.
Last week, Peloton told investors it was liquidating its $2
billion ABS Fund after some 14 lender banks pulled back on
credit. It held out hopes it could salvage its second fund, the
$1.6 billion Multi-Strategy Fund, even though some 40 percent
of that fund's assets were invested in the ABS Fund.
Today, however, the fund told investors on a conference
call that the Multi-Strategy Fund is being liquidated, with the
proceeds returned to investors, the sources said.
It is unclear at this point what proceeds, if any,
investors will get from the liquidation of the two funds, the
company told investors.
Peloton, which was founded by former Goldman Sachs Group
Inc (GS.N) partners Ron Beller and Geoffrey Grant, declined to
The liquidations are a stark reminder of the inherent risks
of hedge funds, which are lightly regulated investment pools
for institutional investors and wealthy people.
Last year, the Peloton ABS Fund was among the year's top
performers, with 87 percent returns generated through bets that
the U.S. subprime mortgage market would collapse.
It is unclear how the markets changed for Peloton, but in a
Feb. 28 letter to investors, it blamed its lenders for "severe"
markdowns in the value of its assets, causing them to pull back
on credit. The fund's assets were backed by four-to-five times
leverage, or debt, in credit markets that have virtually
stalled amid worries about further defaults.
"Although there has not been any material deterioration in
the credit quality of the (ABS) fund's assets, given the
current liquidity situation in the asset backed securities
market, the fund has experienced severe net asset value
declines," Peloton said in the letter.
The firm's collapse comes amid a series of travails by
credit hedge funds. On Tuesday, Drake Management said it
suspended investor redemptions in its Drake Low Volatility Fund
group as of Feb. 29, a sign that often precedes a shutdown.
Drake Management, founded by PIMCO and BlackRock alumni,
manages over $10 billion in various fixed income strategies.
In a statement, Drake said it took the action to prevent
investors from "liquidating investments in a market
characterized by unprecedented illiquidity" and demands by
lenders for increased collateral.
And last month Citigroup Inc's (C.N) CSO Partners, a
formerly $500 million credit hedge fund, suspended investor
withdrawals after a 10 percent loss. The fund recently said it
has restructured, although redemptions continue to be
(Reporting by Dane Hamilton; Editing by Brian Moss/Andre