Elgin fund blocks withdrawals

Date: Thursday, January 17, 2008
Author: James Mackintosh, Financial Times

The flagship hedge fund of Elgin Capital, the $3.3bn London credit specialist, has become the latest to block withdrawals after big losses on leveraged loans.

Elgin Corporate Credit Strategy, which has close to $1bn in funds, blocked withdrawals and stopped calculating its net asset value just before Christmas.
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The reasons for the suspension remain unclear, but it came as credit funds were facing fee rises on their borrowing and, in some cases, withdrawal of lending facilities. Many credit markets were also illiquid, or difficult to trade, a common cause of problems at hedge funds facing investor demands for their money back.

Elgin, founded in 2003 by Mike Clancy, a former global co-head of credit trading at Merrill Lynch, and Guill­aume Bonpun, former Dresdner Kleinwort head of bond syndication, was already having a torrid year. At the end of September it was down 6.29 per cent, and it is thought to have continued to struggle for the rest of the year.

Elgin told investors at the end of the third quarter that “we look forward to a strong performance in the months ahead” as it expected liquidity to return to markets and a rise in the value of European leveraged loans, its biggest position. Since then leveraged loans have continued to fall in value amid pressure on credit and fears of a US recession.

A series of funds hit by the credit squeeze have suspended withdrawals over the past year, infuriating investors and in some cases prompting threats of lawsuits. The received wisdom in the industry is that suspension is a last resort, as many investors who had not tried to withdraw their money treat the suspension as a signal to leave.

Elgin’s Corporate Credit Strategy has attracted institutional investors including Man Group, as well as being sold on private bank platforms. The firm also runs structured loan vehicles and an event-driven hedge fund.

Elgin did not return calls.