Ritchie says to liquidate if plan not OKed-sources
Wed Oct 11, 2006 2:21 PM ET
By Dane Hamilton
NEW YORK, Oct 11 (Reuters) - Ritchie Capital Management LLC, a large Chicago-based hedge fund group, said it could liquidate its flagship funds if investors don't approve a restructuring plan this week, people familiar with the matter said this week.
Ritchie, which suffered big energy trading losses last year and a recent exodus of trading talent, told investors that it has faced a "high level" of redemption requests, or demands for capital return, according to a confidential Sept. 30 letter to investors that was obtained by Reuters.
Ritchie, which was founded in 1997 by investor Thane Ritchie, managed some $2.5 billion earlier this year in various strategies, including $1.5 billion in U.S. and Cayman Islands-based "multi-strategy" funds, according to industry sources. However, it said in the letter that its "general portfolio" stood at $731 million as of Aug. 31. It is unclear what the general portfolio includes.
Ritchie, which last year began negotiations in recent months with a committee consisting of investors holding more than 60 percent of the assets in its multi-strategy funds, according to the letter. The move was aimed at thwarting a wholesale investor exodus from the fund, which would threaten its viability as a business.
The committee "agreed that a restructuring was the best way to avoid a substantial loss in value of the multi-strategy fund's portfolio," Ritchie said in the letter.
"If investors do not approve the restructuring, RCM (Ritchie Capital Management) believes it would be necessary to commence an orderly distribution of the multi-strategy fund's assets," otherwise known as a liquidation, the firm warned.
A Ritchie spokesman declined to comment.
The restructuring comes amid a talent exodus at Ritchie as its financial results are suffering. Those who have left include Eli Pars, who headed the firm's convertible arbitrage strategies, sources said. Last year, the firm sharply cut its energy trading strategies after losses in the wake of Hurricane Katrina.
The firm reported losses of 11 percent in energy trading for 2006 for its offshore fund as a result, according to industry sources. Its multi-strategy offshore fund fell 2 percent through August, and was down 2.5 percent for 2005, but up over 10 percent in both years prior to that.
GATES
Like many hedge funds, Ritchie employs "redemption gates," which limit the amount of capital that the fund must return to investors at any given period.
However, rising investor pressure prompted Ritchie to propose revising the gates, similar to a move last month by Amaranth Advisors LLC, a formerly $9.2 billion fund that suffered a $6.4 billion loss in energy trading in September.
"Investors were understandably upset that they lost money and cannot withdraw what value that is left," said one person familiar with the matter. "They were pressing Ritchie to come up with a plan to unlock their investment."
Ritchie said the latest restructuring plan -- its second in recent months -- was approved by the investor committee. People close to the firm said they expect investors to approve it by Oct. 13, the vote deadline.
Like many multi-strategy hedge funds, Ritchie has poured money into hard-to-value illiquid assets in recent years, such as private equity. To get a better handle on the value of such assets and to make money available for redemptions, Ritchie said it hired investment bank Houlihan Lokey Howard & Zukin to provide independent valuations alongside its own auditors.
Wed Oct 11, 2006 2:21 PM ET
By Dane Hamilton
NEW YORK, Oct 11 (Reuters) - Ritchie Capital Management LLC, a large Chicago-based hedge fund group, said it could liquidate its flagship funds if investors don't approve a restructuring plan this week, people familiar with the matter said this week.
Ritchie, which suffered big energy trading losses last year and a recent exodus of trading talent, told investors that it has faced a "high level" of redemption requests, or demands for capital return, according to a confidential Sept. 30 letter to investors that was obtained by Reuters.
Ritchie, which was founded in 1997 by investor Thane Ritchie, managed some $2.5 billion earlier this year in various strategies, including $1.5 billion in U.S. and Cayman Islands-based "multi-strategy" funds, according to industry sources. However, it said in the letter that its "general portfolio" stood at $731 million as of Aug. 31. It is unclear what the general portfolio includes.
Ritchie, which last year began negotiations in recent months with a committee consisting of investors holding more than 60 percent of the assets in its multi-strategy funds, according to the letter. The move was aimed at thwarting a wholesale investor exodus from the fund, which would threaten its viability as a business.
The committee "agreed that a restructuring was the best way to avoid a substantial loss in value of the multi-strategy fund's portfolio," Ritchie said in the letter.
"If investors do not approve the restructuring, RCM (Ritchie Capital Management) believes it would be necessary to commence an orderly distribution of the multi-strategy fund's assets," otherwise known as a liquidation, the firm warned.
A Ritchie spokesman declined to comment.
The restructuring comes amid a talent exodus at Ritchie as its financial results are suffering. Those who have left include Eli Pars, who headed the firm's convertible arbitrage strategies, sources said. Last year, the firm sharply cut its energy trading strategies after losses in the wake of Hurricane Katrina.
The firm reported losses of 11 percent in energy trading for 2006 for its offshore fund as a result, according to industry sources. Its multi-strategy offshore fund fell 2 percent through August, and was down 2.5 percent for 2005, but up over 10 percent in both years prior to that.
GATES
Like many hedge funds, Ritchie employs "redemption gates," which limit the amount of capital that the fund must return to investors at any given period.
However, rising investor pressure prompted Ritchie to propose revising the gates, similar to a move last month by Amaranth Advisors LLC, a formerly $9.2 billion fund that suffered a $6.4 billion loss in energy trading in September.
"Investors were understandably upset that they lost money and cannot withdraw what value that is left," said one person familiar with the matter. "They were pressing Ritchie to come up with a plan to unlock their investment."
Ritchie said the latest restructuring plan -- its second in recent months -- was approved by the investor committee. People close to the firm said they expect investors to approve it by Oct. 13, the vote deadline.
Like many multi-strategy hedge funds, Ritchie has poured money into hard-to-value illiquid assets in recent years, such as private equity. To get a better handle on the value of such assets and to make money available for redemptions, Ritchie said it hired investment bank Houlihan Lokey Howard & Zukin to provide independent valuations alongside its own auditors.
