funds worth $5.6 billion frozen by hedge fund , page-2

HFA puts $1bn lock on fundsScott Rochfort

December 24, 2008

HEDGE fund investment group HFA Holdings has blocked its unit holders from accessing more than $1 billion of deposits in three of its managed funds just days after trumpeting the "peace of mind" one of its other funds had provided investors.

HFA, which at the start of the year distanced itself from its former cornerstone investor, the failed Gold Coast investment group MFS, yesterday blamed "deteriorating liquidity" for its decision to suspend withdrawals from its Diversified Investments Fund, Octane Fund and Octane Fund Series 2.

Shares in HFA plunged 5.3¢, or 55 per cent, to 4.3¢, as some investors appeared to lose what remaining faith they had in the embattled investment company. HFA shares have now fallen 98 per cent since their $2.83 peak, set in July last year.

The company's chief executive and founder, Spencer Young, and two heads of asset management, Robert White and Oscar Martinis, declined to speak to BusinessDay. A short statement provided earlier by the company read: "The board understands that HFA's key competitors in both Australia and the United States have previously announced similar measures," referring to moves by other unlisted investment funds to freeze redemptions.

The company, which has 40,000 retail investors across all its funds, declined to say how long the three funds would be frozen.

HFA also failed to say whether the recent turbulence across the hedge fund sector had affected the funds' asset value.

The largest of the frozen funds, Diversified Investments Fund, held about $940 million of deposits on June 30 and has the bulk of its money tied up in unlisted investment schemes.

The fund has already seen some of its listed investments hit hard, including its 11 per cent in the listed HFA Accelerator Plus, whose shares have slumped 80 per cent in recent weeks.

HFA has left its six other unlisted funds open, including the International Share Fund. In a recent advertising campaign, HFA boasted about the ISF's performance, saying: "Capital preservation with consistent returns is our core strength, and as you can see, we have delivered not only during the good times but through all market conditions."

Mr Young even boasted about the performance of the frozen Diversified fund at October's annual meeting, saying the fund compared "extremely favourably with leading indicators".

Issues sure to rankle unit holders are the huge bonuses paid to HFA senior management and performance fees paid by the Diversified fund to HFA. According to HFA's annual report, Mr Young pocketed a $250,000 bonus while Mr Martinis and Mr White received $370,000 in bonuses last financial year.

The Diversified fund also makes up a large portion of HFA's revenue, having paid about $17 million in performance and management-related fees last financial year. In all, HFA collected about $47 million in fees last year.

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