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Northern Rivers suspends redemptions in face of 'difficult period'

FUNDS REPORTER

Northern Rivers Capital Management Inc. has temporarily suspended redemptions in its flagship hedge fund for up to two years to buy time to turn around an investment that once boasted stellar returns.

Northern Rivers Innovation LP, which lost 66 per cent last year, is invested in smaller companies and illiquid private securities, and meeting redemption requests would have required forced selling of the investments, said its manager Hugh Cleland. "It was a tough decision," the 39-year-old fund manager said in an interview. "We believe the two-year hiatus on redemptions will allow us to get through this difficult period, and have a lot of these positions realize the value that we believe is there."

The halt in redemptions enables him to keep his stakes in favourite stocks like Vendtek Systems Inc. and WebTech Wireless Inc., Mr. Cleland said.

The move is the latest faced by struggling Canadian hedge funds that hold either beaten-up smaller-company and illiquid securities, or resource stocks.

The suspension of redemptions for the fund, whose assets have fallen to under $40-million, took effect after the markets closed last Friday. The limited partner agreement for the fund permits a halt in withdrawals if there is insufficient liquid assets and redemptions would be considered detrimental to the fund, he said.

There are also some investors on the sidelines who still want to invest in the fund but have held off "for fear that redemptions might spiral out of control like they did at some of our competitors," he added.

Likrilyn Capital Corp., which is controlled by Robert Blakely, president of Northern Rivers, holds over 40 per cent of the assets in the hedge fund.

Northern Rivers Innovation RSP Fund, which has less than $5-million in assets and operates under a different structure, has not suspended redemptions, but could exercise the option to settle redemptions in kind.

"They [unitholders] would end up with their pro-rata share of both the private and public companies in the portfolio," Mr. Cleland said.

Mr. Cleland also runs the Horizons Northern Rivers LP for JovFunds Management Inc. Yesterday, it suspended redemptions in this fund until a unitholder meeting on or before Feb. 28. If investors reject a request to halt redemptions for two years, the fund will be wound down. The fund has just over $2-million in assets and less than 50 investors.

Salida Capital is also facing its share of woes. The assets of several offshore funds have been frozen because they are caught up in the failure of Lehman Brothers. Its flagship domestic Salida Multi-Strategy Hedge, which lost 67 per cent last year, is also facing redemptions.

As well, three managers and president Gary Ostoich have left suddenly in the past few months. Departures included Jason Russell, manager of the former BTR Global Macro Fund; Norman MacDonald, who ran BTR Global Energy Fund; and Terry Bell, who ran BTR Global Prospector.

Mr. Russell, whose BTR Global Macro fund was up around 23 per cent for the first 10 months of 2008, said he resigned in November because he disagreed on the future direction of Salida. He put his fund into cash so it could be wound down. Most of the money has been distributed back to investors.

The flagship Salida Multi-Strategy domestic fund, which was mainly invested in resource stocks, was also 5 to 7 per cent invested in his offshore fund, which was the part that was "working near the end," he said.

Mr. Russell, who is starting a new investment firm called Acorn Global Investments, acknowledged his departure likely fuelled more redemptions in the fund.

Meanwhile, Lawrence Asset Management Inc. is proposing a restructuring for its flagship fund. Lawrence Partners Fund, run by Ravi Sood, plunged 81 per cent last year.

The Lawrence Partners Fund suspended redemptions in early November to present alternatives to investors because the fund was largely left with private investments not easily liquidated. Next Monday, unitholders will vote on whether to create two new classes of shares - reinvest and windup.

Proceeds from sales of investments would be redeployed in the fund for those who have chosen the reinvest shares. Those who elect the windup shares will be eventually be paid in cash. If this option is rejected, shareholders will be asked to vote for a windup of the fund.

Epic Capital Management Inc. suspended redemptions in its Epic Limited Partnership, Epic Trust-A and Arrow Epic Capital - which it ran as an outside manager - to wind the funds down. The cash is being returned in tranches with the goal of giving back all the monies to investors by the end of the first quarter in 2009.

*****

Hedge funds that lost more than 50% in 2008

FUND2008200720062005
DeltaOne Energy Fund LP- 98.4%- 76.1%- 76.4%56.4%
Lawrence Partners- 80.6%20.9%74.7%-
DeltaOne Strategic Energy- 76.5%1.3%- 30.5%120.4%
Dynamic Power Emerging Markets- 74.3%40.6%51.7%-
Dynamic Power Hedge Fund-F- 71.8%38.6%71.5%73.0%
Front Street Mining Opportunities F- 67.7%18.2%56.8%-
Salida Multi-Strategy Hedge- 66.5%35.8%87.4%34.3%
Horizons Northern Rivers Fund LP- 66.3%- 3.3%102.3%15.8%
Arrow U.S. Equity Income- 66.2%---
Northern Rivers Innovation Fund LP- 65.2%- 2.4%92.5%24.8%
Webb Canadian Performance Fund- 62.0%21.3%-
Dynamic Contrarian- 59.1%0.6%50.4%-
Mackenzie Alternative Strategies- 59.0%2.5%8.1%4.9%
Northern Rivers Global Energy LP- 53.5%30.4%13.0%-
AlphaNorth Partners Fund Inc.- 53.3%---
Sprott Small Cap Hedge- 50.9%---

THE GLOBE AND MAIL; SOURCE: GLOBEFUND.COM

© 2007 The Globe and Mail. All rights reserved.

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