Wednesday, September 19, 2007

Absolute Mess



Absolute Capital Yield Strategies Fund – Built to last through credit cycles

—Headline of Absolute Capital statement, July 18, 2007

Florian Homm, the co-founder of Absolute Capital Management Holdings Ltd., has quit the U.K-.listed hedge fund after a boardroom clash over how best to boost fund performance and compensate staff during the credit turmoil, sending its share price plunging 70% at yesterday's close.


—Wall Street Journal, September 19, 2007


You will not read about the current turmoil at Absolute Capital (“The Structured Credit Specialists”) on that firm’s web site.

No, the latest entry in the Absolute Capital “Newsroom” is dated way back on August 27th, a lifetime in the fast moving world of credit derivatives.

It was an “update” on the Yield Strategies Fund, which had been “temporarily” closed—i.e. no withdrawals—on July 25th, and it reads, in part, as follows:

Since our last update of late July, we have seen some stabilisation as well as some opportunities emerge. The structured credit market, however, remains illiquid with few secondary transactions being completed and almost no primary issues being priced. What started as a subprime credit event has now spread and impacted just about all forms of credit investments. The result has been a broad-based repricing of credit risk.

Since July, there have been many hedge funds, traditional fund management firms and banks disclosing subprime related losses and/or who have suffered from negative mark-to-market losses across the wider credit markets. In many of these cases problems have been exacerbated by “forced selling” as a result of high levels of leverage and financing terms being withdrawn by banks, something that Absolute Capital has been able to avoid due to its distinct investment strategy…

However “distinct” that investment strategy may be, Absolute Capital has not been “able to avoid” the internal power struggle now making its way to the front pages of the Wall Street Journal, as quoted above and elaborated on as follows:

Mr. Homm, who set up Absolute Capital Management in 2002 with co-founder Sean Ewing and was also co-chief investment officer, is thought to be the most high-profile hedge-fund executive in Europe to leave his post since the credit crunch spread from the U.S. to Europe this summer….

Mr. Homm pledged not to start another fund or compete with Absolute Capital. He did raise the prospect of continuing his activist stance regarding Absolute Capital, Europe's eighth-busiest activist shareholder since 2000 based on research by London Business School published by Financial News last month.

That a hedge fund of Absolute’s size and “high profile” is suffering inner turmoil on the heels of “temporarily” halting withdrawals is not surprising.

What should be more surprising—and distressing to those who have invested their hard-earned money in the Absolute Capital family of funds—is the minimalist news flow available on the Absolute web site.

Herewith a list of all 2007 entries in the Absolute "Newsroom." Note especially the extremely brief time span bridging the announcement that the Yield Strategies Funds were “Built to last through credit cycles” and the closing of those funds.

Like, a week:

March 19 Yield Strategies Fund: Update on US sub-prime mortgage market

April 16 Moody’s upgrades PINS Series 2005-1 rating to Aa2

May 9 Absolute Capital launches New Zealand dollar version of successful Yield Strategies Fund

June 6 Structured Credit Investor: Interview with portfolio manager Campbell Smyth

June 12 Yield Strategies Fund investor update: Volatility continues in sub-prime mortgages

June 28 Yield Strategies Fund investor update: Market impact on our Funds

July 18 Absolute Capital Yield Strategies Funds – Built to last through credit cycles

July 25 Yield Strategies Funds – Questions and answers

July 25 Absolute Capital temporarily closes its Yield Strategies Funds to protect investors

August 28 Yield Strategies Fund – August 2007 update



I am absolutely not making this up.



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

4 comments:

Heinz said...

Confusingly there are two completely unrelated Absolute Capitals, one is an Australian company running credit funds whose website you seem to have found, the other is a European company (www.abcapman.com) started by Florian Homm who is having a very public falling out with the current management.

best regards

John said...

Jeff,
Your analysis is making a gigantic mistake. Absolute Capital Group is a completely different organization from Absolute Capital Management. For our reading pleasure, please review your facts before thinking out loud.

whydibuy said...

So much for the old axiom that no news is good news.

Jeff Matthews said...

The comments from Heinz and John are quite correct: the two Absolute Capitals are unrelated, except that they both appear to be having similar issues.

We'll be back with a clarification. In the meantime, the title of this post should be changed to "Absolute Messes."

Thanks to those who responded both hear and via email, without attribution.