funds worth $5.6 billion frozen by hedge fund

repost thanks to Dub this morning



Funds worth $5.6 billion frozen by hedge fund manager HFA

By Ben Butler

The Courier-Mail
December 24, 2008 03:46am


Christmas nightmare ... funds worth $5.6 billion have been frozen by hedge fund manager HFA affecting 40,000 Australian investors

* Hedge funds worth $5.6 billion frozen
* 40,000 Aussie investors affected
* Market analysts shocked by downfall

UP to 40,000 investors across Australia face an uncertain Christmas after funds worth $5.6 billion were frozen by hedge fund manager HFA yesterday.

The funds, including $1.1 billion held by Australian mums and dads, have been caught up in a wave of hedge fund collapses triggered by the global financial crisis.

HFA's move adds to an estimated $20 billion worth of Australian funds frozen because of the financial crisis over the past year, The Courier-Mail reports.

Yesterday morning's announcement from HFA - which was spun out of collapsed Gold Coast property group Octaviar in a $222 million float in 2006 - triggered a savage reaction from the market, cutting the company's share price in half in frenzied trade.

Company scrip, which had already been decimated in recent months, closed down 55.2 per cent, or 5.3, at just 4.3.

About 60.5 million shares changed hands, compared with about a million the day before.

Three Australian HFA funds, holding about $1.1 billion invested by mums and dads, have been completely frozen and another $US3.1 billion ($4.5 billion) held in a US-based fund has been partially frozen.

The total amount of funds affected is about $5.6 billion, representing about two-thirds of the $8.48 billion HFA manages on behalf of investors.

In a short statement to the stock exchange, HFA said redemptions from the Australian-based Diversified Investments Fund, the HFA Octane Fund and the HFA Octane Fund Series 2 had been frozen at 6pm on Monday.

It said the freezes "were due to deteriorating liquidity in underlying investments and the need to ensure compliance with the Corporations Act".

Corporate law requires illiquid funds to be frozen in order to prevent them becoming insolvent.

Investors seeking to withdraw from HFA's US-based Lighthouse Diversified Fund are to receive only part of the money requested.

HFA said the rest of each redemption request was to be transferred to a special purpose fund that would hold "less liquid investments until they are liquidated".

An HFA spokesman declined to say how much of each redemption request would be paid.

He said HFA had about 40,000 retail investors in Australia.

HFA has about 30 funds which in turn invest in about 200 hedge funds across the world that make bets on the price of assets such as stocks, debt and real estate.

HFA's woes will prove embarrassing for market analysts who rated the company as a top buy as recently as two weeks ago.

Founded by a group of investment bankers, HFA listed in 2006 at $1.10 a share and became a market darling.

Its stock price soared to a peak of more than $2.76 in August last year and it agreed to a $700 million deal to take over its US partner, Lighthouse.

But since then the company has suffered a series of blows, sending its share price tumbling by more than 95 per cent in the past year.