Last night, several hedge funds with assets of more than $4 billion were on the edge of collapse or had halted withdrawals, despite efforts by the US Federal Reserve this week to ease America’s credit crisis with a $200 billion collateral lending facility.
Seven funds have been frozen this month and the potential closure of six more funds is seen as evidence that the initiative by America’s central bank to allow lenders to swap their risky mortgage-backed bonds for safer Treasury debt will not solve the long-term problem of the deteriorating credit crisis. This fear was reflected on Wall Street as the dollar fell to a new low against the euro and sterling, as the euro hit $1.55 for the first time.
New York-based Drake Management warned investors in its $3 billion Global Opportunities Fund that it is considering closing the fund so they can attempt to maintain and maximize value for investors during this market downturn. The fund, which lost 25 per cent last year, has already blocked investors from withdrawing their cash.
Drake might also be considering whether to close two other hedge funds, the Drake Low Volatility fund and the Drake Absolute Return, both of which lost almost a sixth of their value last year.
GO Capital Asset Management, based in Amsterdam, said that it has frozen its $881 million Global Opportunities hedge fund, preventing investors from withdrawing their capital.
ING, the Dutch bank, froze two investment trusts with assets worth €275 million in New Zealand that were highly exposed to mortgage-backed bonds, blaming the global credit crunch.
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