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Hedgemedia’s AltInvestment Global News Round-Up: Citi tries to fend off legal action over Falcon fund


Citigroup is asking some of its private clients to accept USD250m in compensation for dropping legal claims stemming from steep losses in its troubled Falcon Strategies hedge fund.

Citigroup is asking some of its private clients to accept USD250m in compensation for dropping legal claims stemming from steep losses in its troubled Falcon Strategies hedge fund. The fixed-income fund mainly traded mortgage bonds, government debt and other types of credit derivative, and has lost 75 per cent in value since running into trouble last summer. In a class action suit led by Robert Zeff, investors allege that Citi-owned broker Smith Barney marketed the fund as an ‘extremely low-risk investment’.

Some regional banks are among Falcon’s investors. Charlotte, North Carolina-based Wachovia had a USD1bn exposure to the troubled fund, while Fifth Third of Cincinnati, Ohio had invested USD612m. Although both banks have lost more than USD600m from investments tied to the fund, they are not part of the class action suit. Separately, Falcon’s head Reaz Islam, who spent two decades at Citi, is leaving.

Blackstone Group and Lehman Brothers are among firms recruiting investors for large mezzanine funds. Blackstone is raising USD1bn while Lehman is targeting USD3.5bn for two separate funds. Newstone Capital Partners is believed to coming to the market soon with its own USD1bn fund. Institutional limited partners are investing in the strategy in droves.

Activist investor Carl Icahn has drawn other large hedge funds into its battle with Yahoo! Third Point, the USD5.7bn activist fund led by Dan Loeb, Paulson & Co, a New York fund that soared last year after betting on a sub-prime mortgage crash, and corporate raider T. Boone Pickens have built large stakes in the Internet company. Icahn and his supporters, who have accumulated more than 5 per cent of Yahoo!’s stock, want the company to be sold to Microsoft. Talks about a possible deal fell apart after they could not agree on a price.

Dow Kim, who was previously co-president of Merrill Lynch’s global markets and investment banking unit, has had to postpone the launch of his planned fund after his initial backers stalled. Credit Suisse and an unnamed Korean bank failed to produce the USD200m they had promised to Kim’s new multistrategy firm, Diamond Lake Investment Group. Kim, who had hoped to get the fund off the ground last month with as much as USD1bn in assets, says he will press ahead with the launch eventually.

London-based fund of funds manager Financial Risk Management is opening offices in Hong Kong next month and Seoul later this year. The USD15bn firm already has regional offices in Tokyo and Sydney. The new locations will help scout Asian talent both for its funds of funds and its new incubation business, FRM Capital Advisors.

GLG Partners, which has recently suffered a drop in assets in part linked to the imminent departure of its star emerging markets manager Greg Coffey, has won a USD3bn mandate from Banca Fideuram, the EUR65.5bn asset management unit of Italy’s Intesa Sanpaolo Group. GLG will deploy the capital in 130/30 funds. Banca Fideuram has already USD250m invested with GLG, which manages total assets of USD24bn.

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