Lehman’s U.K. Administrator Seeks to Return Hedge-Fund Assets

Date: Wednesday, July 15, 2009
Author: Bloomberg.com

Lehman Brothers Holdings Inc. may return hedge-fund assets as soon as next year that were frozen when the New York-based securities firm collapsed in the largest bankruptcy on record.

PricewaterhouseCoopers, Lehman Brothers International Europe’s administrator, plans today to ask a U.K. court to block any creditor claims for assets after this year, the accounting firm said in a statement. That would allow PwC to return money Lehman had held in trust for fund managers as soon as the first quarter of 2010.

About 700 hedge funds and investment firms lost control of $23 billion in assets when Lehman filed for bankruptcy on Sept. 15. They were clients of the European unit’s prime brokerage in London. MKM Longboat Capital Advisors LLP, based in London, closed its $1.5 billion Multi-Strategy fund after assets were stuck in Lehman. GLG Partners Inc. of New York said at least $95 million in trades were locked up.

The proposal is “the best hope that many people have got of getting their trust assets back in the short term,” said Darren Fox, a lawyer at London-based law firm Simmons & Simmons who represents some Lehman creditors. “If this doesn’t go through it could, according to the administrators, take a decade or more to get assets back out to people.”

Individual investors have been able to get money back by negotiating deals with the administrator, a process PwC called lengthy and onerous. They had to provide guarantees from a bank with a credit rating of AA or better, and give other assurances that the administrator can take assets back if needed, Fox said.

Nine-Month Delay

More than 75 percent of the creditors will have to back the plan in an October vote for it to become effective, PwC said. If they block the plan, they could face an additional nine-month wait while the administrator devises an alternative. Ramius LLC, a New York-based hedge-fund manager that’s a member of Lehman’s creditors committee, urged creditors to approve the plan.

The proposal “‘is the best way to address the return the clients and we encourage LBIE clients to support it,” Owen Littman, Ramius’s general counsel, said in the PwC statement.

Assuming the court approves the plan, creditors will vote on whether collateral that had been pledged to Lehman and then lent out by the bank -- a process called rehypothecation -- can be “netted,” or counted toward repayment of loans, according to Lehman prime-brokerage clients. If netting is approved, funds whose loans are considered covered by rehypothecated assets will get back any other money now frozen at Lehman.

PwC has returned about $12.5 billion to investors whose assets were trapped in Lehman’s bankruptcy, according to Stephanie Howel, a spokeswoman for PwC in London. Most of that came from the return in November of a 9 percent stake in Rio Tinto Group held by China’s Chinalco, or Aluminum Corp. of China.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net