The Gates Go Up in Hedgistan

The implosion of commodities and resource equities has ripped a giant hole in the P&L's of hedge funds worldwide as the most crowded in history unwinds in dramatic fashion. An shooting against the slow footed big boys has left more nimble traders sitting pretty...the recent action in AK Steel (AKS-NYSE) is a good example. The stock has cratered, leading Harbinger to puke their position like rookie traders six months out of business school:

Shares of AK Steel Holding Corp. dropped Tuesday after Harbinger Capital Partners reported lowering its stake in the steel company to about 4 percent.

According to a Form 4 filed with the Securities and Exchange Commission, the Harbinger Capital Partners Master Fund I Ltd. beneficially owns 4.5 million shares of the West Chester, Ohio, steel producer.The hedge fund previously owned 11 million shares, representing a 9.8 percent stake of AK Steel. It sold the shares on Sept. 4 and 5, according to the filing. AP

The stock's selloff has been swift, and is similar to the decline in Cleveland-Cliffs, another Harbinger name that has fallen apart.

Of course they are not the only fund in trouble. Atticus Capital tried to dispel rumors of fund-of-fund redemption requests, but their 13-F has been mandatory reading of late, and yesterday the list was drawn and quartered with their typical name (MA, V, CCI, BBD, ITU, NYX, UBB) down perhaps 6%. And the lemming like fund-of-funds that provide the industry with their lifeblood are entering their offices in a tizzy today, and are being greeted with more bad news, at least if they allocated money to London-based RAB Capital.

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AK Steel 6-month Chart

Time to nibble? Or back up the truck?
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RAB Capital, the London-listed hedge fund group, plans to freeze clients’ redemptions from its flagship Special Situations fund after the fund lost almost 50pc this year.

RAB proposed to lock down investor funds and postpone redemption by three years to October 3, 2011. Currently withdrawals from the fund are paid out on a quarterly basis and investors can ask for their money back by giving 180 days notice. Telegraph

Yes, the gates are up and getting your money back looks to be problematic. But they seem to think a little time will heal all:

Mr Richards said today: “We are very disappointed with the performance of Special Situations in 2008 and greatly regret the impact that the performance will have on investors.

“However, we believe that the underlying thesis of investment in early stage natural resources is one that will repay patient investors over time.”

RAB blamed poor liquidity and the very weak market for early stage natural resources and other development stocks for its decision.

Yes, natural resource equities got them too...and if you call them in February you might get your money back.

Whatever is left, that is.

For those of your looking to bottom fish metals, energy, agriculture, steel etc, take note. There are some bargains out there, but the bottoming process is pretty ugly.
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AK Steel shares fall after shareholder cuts stake
AP

RAB Capital stops investors taking money from Special Situations Fund
Telegraph
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The content contained represent the opinions of 1440 Wall Street. 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.

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