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United Capital Markets Holdings Inc.: Horizon Funds - Subprime ABS

2007-07-02

Count of distinct funds: 4

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stories: miamiherald.com, nytimes.com, bloomberg.com, marketwatch.com, nypost.com, com.pk, dealbreaker.com, nypost.com

Update, 2008-07-11

Devaney has closed down all his funds. These are Horizon Fund, Horizon ABS Fund, Horizon Fund III and Horizon ABS Master Fund. According to the Miami Herald article:

According to a letter Devaney sent to investors Wednesday, the ultimate blow came at the end of June when Deutsche Bank, the funds' key lender, issued a margin call -- or demand for additional collateral -- after deciding the existing securities had declined in value.

When his funds could not ante up the additional collateral, the bank declared the loans in default and auctioned the bonds. Devaney said the funds' other lender, Pershing -- a unit of Bank of New York -- then cut off lending to the funds.

''The recent actions of our lenders have now permanently ended any recovery that might have been available to the funds,'' he wrote.

The banks were sure very generous for a very long time.

The New York Times article has more detail on Devaney and his situation. It also mentions that United Capital Markets Holding is still in business as a broker-dealer.

Original Writeup, 2007-07-02

Bloomberg reported on July 2nd that United Capital Markets Holdings (or "UCMH") had halted redemptions on certain hedge funds residing in their Horizon Strategy group. The article reports:

The funds are within the company's Horizon Strategy group, including the Horizon ABS Fund LP, said Michael Gregory, a spokesman for the Key Biscayne, Florida-based firm.

"We did that as a defensive move because we had an unusually high number of redemption requests and we didn't want to be a forced seller in this market," Gregory said in a telephone interview. One of the redemption requests was from an investor who had put up about 25 percent of the funds' money. ...

The Horizon ABS offshore fund lost 5 percent from March 31 through the end of May. The fund gained almost 40 percent last year. ...

Based on what we were hearing about the lack of liquidity and absence of bidders in the market, it's hard to fathom that these securities weren't worth less back in March, April and May," Parker said. "These positions didn't get marked down until June. Nobody's hand was forced in the market until then."

Update, August 18, 2007: A MarketWatch article lists the effected funds as Horizon Fund L.P., Horizon ABS Fund L.P., Horizon ABS Fund Ltd. and Horizon ABS Master Fund Ltd., and has more background on Devaney's shop.

We also found this article (there are many others like it) which points out that Devaney, who had significant amounts of money invested in the funds (to his credit), has had to put up many of his personal luxury assets for sale (helicopter, 142-foot yacht, mansion in Aspen, etc.). Will Devaney be able to bail out his funds with his (his family's?) own money? Stay tuned to find out.

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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.