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Wednesday, August 12, 2009

A Familiar Story

Wsj today

Another hedge fund blowup with some of the usual features (which are noted in bold italics) :

Atticus Capital to Close Two Big Funds .

Atticus Capital LP is significantly shrinking its operations, an abrupt change for a firm that 18 months ago was at the vanguard of a new breed of aggressive, globally connected hedge funds.

In a letter to investors, Atticus founder Tim Barakett said he would hand back $3 billion of their invested capital and close two big funds under his management. While the firm will continue to operate a $1.2 billion European fund, Mr. Barakett said he was effectively ending his 15 years of fund management.

The 44-year-old had success for many years as a new-era value investor, doing deep research into companies while also taking chances with often volatile stocks.

Overly concentrated positions which are difficult to exit :

Atticus piled into a small group of these stocks, opting to take huge positions that often were difficult to exit from rather than "hedge" themselves with large short positions.....

Yet, Mr. Barakett's fortunes flagged amid the recent financial panics. His flagship fund, Atticus Global, fell 27% in 2008. Several bets went sour in 2008, particularly in financial companies. Atticus Global's high-profile stake in Deutsche Börse AG lost about half of its value, or some $500 million, from April 2008 to May 2009.

Mr. Barakett proved too skeptical of markets at times this year, and bets went the wrong way at other times. Atticus Global was heavily invested in cash in the first quarter before buying more stocks in the second quarter. The fund is down 6% in 2009, even as other hedge funds rose an average of about 12%.....

Unanticipated changes in fund management actions and illiguidity for investors::

Atticus angered some investors in March 2008 with how it treated its investment in Deutsche Börse. Atticus separated its roughly $1 billion stake in the exchange into what is known as a "side pocket," which investors saw as limiting their ability to withdraw funds. Atticus executives were privy to confidential information, making it illegal for them to trade the stock, executives of the firm say.

"When you side-pocket a liquid, publicly traded equity, that tells investors that the manager will do whatever they want whenever they want, and to add insult to injury, the stock got annihilated," said Brad Balter, an investment adviser who pulled clients' money out of Atticus at the end of 2008.

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