Monday, 10 November 2008

Russian hedge funds face threat of closure

Financial News

Jason Corcoran in Moscow
10 November 2008

The closure of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.

It is estimated about 70 hedge funds are operating in Russia and the Commonwealth of Independent States and analysts predict over half will be wiped out by next year.

The closure of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London.

Florin’s principals Neil Smith and Aidan Freyne are hoping to buy the fund’s architecture from its shareholders at Trust Capital and relaunch the fund as a distressed assets vehicle.

Smith was previously head of alternative investments at the UK’s Morley Fund Management while Freyne spent 19 years with Salomon Brothers and subsequently Citigroup.

Smith said: “Credit has been a difficult space to be in but it’s going to be great for distressed and acquiring debt at super-distressed levels.”

Fears are growing that other Russia funds with their mainly long-only bias may be wiped out like they were following the 1998 financial crisis.

Florin was set up earlier this year with $100m (€78m) in seed money from Trust Bank and other external sources.

James Fenkner, founder of Moscow hedge fund Red Star Invest, said most Russia funds were equity focused with only minimal shorting so most had been hit by the slide in stock markets.

He said: “I haven’t seen anything like this since 1998. It’s a case of survival. It’s going to be a blow-up of the good, the bad and the ugly.”

Fenkner said Red Star’s Austrian backer Erste Bank was standing behind the fund, which had bucked the trend and returned over 100% during October.


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