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Deephaven Event Fund - M&A, Takeovers

2008-01-31

Count of distinct funds: 1
Capital base: $2.1 billion (peak)
Loss: 6%

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stories: bloomberg.com

According to a Bloomberg article titled, Deephaven Shuts Hedge Fund After Redemption Requests, Deephaven Capital Management's "Deephaven Event Fund", which tried "to profit from takeovers" halted redemptions after investors had requested to withdraw 70 percent of the fund's capital. Per the article:

The firm froze redemptions from the Deephaven Event Fund after clients requested to withdraw 70 percent of capital, according to a letter sent to investors today by Chief Executive Officer Colin Smith. Minnetonka, Minnesota-based Deephaven, a unit of stockbroker Knight Capital Group Inc., will sell assets and start returning money to investors in February.

Deephaven, which oversees $4 billion, couldn't find enough opportunities to profit from U.S. acquisitions as investors shunned bonds and loans used to finance deals, Smith wrote. The fund, which also bet on companies going through restructurings and other changes, was little changed last year and dropped 6 percent this year through Jan. 25, according to an investor, who asked not to be named because the returns are private.

"Managers' ability to know where to place a bet has been extremely difficult in this market, with all of these announced transactions that appear as if they aren't going to get done," said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island, who isn't a Deephaven client.

Bobroff's comment alludes to the difficulty in completing deals amidst the ongoing credit crunch, which is driving up the cost of corporate debt, thereby putting a stranglehold on the previously booming M&A market.

Further to Bloomberg's reporting, investors in the Deephaven Event Fund can only expect to receive half of their money by May.

Deephaven is a unit of Knight Capital Group, Inc. Per the article, other Deephaven funds will remain open.

We are still trying to piece together the details of this closure. If you have any further information regarding Deephaven Event Fund, in particular with regard to the losses sustained by the fund leading up to this liquidation, please let us know.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.