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Weavering Capital - Macro Fixed Income Fund - fixed income (fraudulent?)

2009-03-20

Count of distinct funds: 1
Capital base: $506M (end of feb '09)
Loss: $637M?

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stories: ft.com

London fund outfit Weavering has had to shut down its flagship fund "Macro Fixed Income" after discovering that $637M out of $639M of positions were a single derivatives trade with an offshore firm controlled by founder and CEO Magnus Peterson. Details are sketchy currently, so it isn't clear if this was extreme folly or just run of the mill fraud. More details from the FT article follow below:

Weavering Capital called in administrators on Thursday and its Weavering Macro Fixed Income fund was put into liquidation in the Cayman Islands, after claims the trade could not be paid. Weavering froze the fund a week ago after discovering the position and calling in PwC to investigate.

The failure brings down one of London’s older, if relatively small, hedge fund managers, set up in 1998. Weavering, which runs small funds including one in Sweden, was set up in 1998 by Magnus Peterson, former head of trading at Swedish bank SEB. It had solid returns of 10-12 per cent a year for the past five years.

...

PwC, liquidators of the fund, said there was “considerable uncertainty” over the $637m value listed for the the fund’s main asset not pledged to lenders, a derivative transaction with Weavering Capital Fund Ltd in the British Virgin Islands.

...

The problem was discovered after investors tried to withdraw $223m, of which only $90m has been paid so far. In addition to the outstanding $133m payments, the fund reported assets of $506m at the end of February, down from $535m in January.

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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.