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Okumus Capital - Value, options income

2008-12-12

Count of distinct funds: 3
Capital base: ~$335M at peak in hedge funds
Loss: down to ~$50M AUM in hedge fundsi; 5-42% NAV losses

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stories: finalternatives.com

Per the above FinAlternatives coverage:

Okumus Capital, a $989 million hedge fund shop, is shuttering its hedge fund and long-only offerings, FINalternatives has learned.

The New York-based firm’s trio of hedge funds and its long-only fund have been burned by the financial crisis this year.

According to public data on its offerings, the $30.8 million Okumus Opportunity Partners, $19.2 million Okumus Diversified Value Partners and $2.5 million Okumus Technology Value Partners are down 42.8%, 23.83% and 5.3%, respectively, through October. Its Long-Only Partners Fund is down 15.02%.

While it would seem based on the above that the hedge portion of Okumus' offerings is less than $50M and wouldn't make our $100M cutoff for listing, a June 2006 Morningstar profile on Okumus states that the outfit had about $335M under management in its hedge funds (concentrated in the Opportunity fund) at the point the long-only fund had just opened. Thus, it would seem in addition to dramatic declines in NAV, Okumus has experienced declines in AUM in the ballpark of 75% or more. That would solidly qualify them for our "implode" ranking.

The Morningstar article states that Okumus is value-centric (including, notably, financials), and makes extensive use of out-of-the-money PUTs (which sometimes accounted for most of the fund's returns in years past).

The Hedge Fund Journal has an article on Okumus from April 2007 entitled The best equity hedge manager in America in the long term? The article states:

Being prepared to argue with markets (positions not paying off and adding to losers) and then receiving a big payoff in returns as the markets recognise the value, usually generates a lumpy pattern of return to value investors. Often a fund run by a deep value investor will have months of dull returns, then a spectacular phase of returns as the market comes into gear for their style

It appears that given withdrawals, this time Okumus could not stay solvent longer than the market was "irrational". This may have combined with a continued strategy of OOM PUTs at a time when the market was falling catastrophically, and generally staying down. It is hard to say without seeing a post-mortem of portfolio holdings.

Okumus was founded in 1997.

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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.