Sunday, May 31, 2009

Cayman Island Courts Liquidate Hedge Fund After Questions Raised

By Saijel Kishan

NEW YORK, USA (Bloomberg) -- Dynamic Decisions Capital Management Ltd.’s main hedge fund is being liquidated by court-appointed administrators in the Cayman Islands after investors raised questions about some of its bond holdings.

Hugh Dickson and Stephen Akers, partners at Grant Thornton LLP, were named the fund’s official liquidators by the Grand Court of the Cayman Islands on May 22, the business-advisory firm said in a May 25 statement. They will continue an inquiry begun in April when they were appointed provisional liquidators of the DD Growth Premium Master Fund, according to the statement.

“A number of allegations have been made as to the remaining asset value and the nature of the assets held, and the master fund has been unable to pay a number of large redemption requests,” Grant Thornton said in the statement. The unaudited net asset value of the master fund “indicated” a value of $550 million as of Dec. 31, the firm said.

Dynamic Decisions is willing to “cooperate fully with the liquidators to return the maximum value possible to investors,” the London-based firm said Thursday in an e-mailed statement.

The firm mainly invested in the shares of large US and European companies. Founder Alberto Micalizzi, 40, said in a Feb. 20 letter to clients that the firm scaled back its equity and options holdings in December and bought “fixed-income instruments backed by solid assets.”

About 55 percent of the master fund’s assets were commodity-linked bonds at the end of 2008, according to court documents filed in March.

Dynamic Decisions’ DD Growth Premium and DD Growth Premium 2X funds, which invest in the Cayman Islands-incorporated master fund, were put into provisional liquidation in March at the request of London-based Strathmore Capital LLP and Cadogan Management LLC in New York. The investors said in a court petition that the fund’s board had little information about the bonds.

Micalizzi’s firm has in the last three months been “scrutinized” by the UK’s Financial Services Authority, investigated by accountants appointed by the board and been the subject of an external review commissioned by the investment manager, the firm said in its statement.

“No party has found misconduct on the part of the investment manager to date,” Dynamic Decisions said. “We cannot help but wonder why the board did not take a different path to exactly where we stand today.”

Dynamic Decisions is “only now discussing with the liquidator the possibility of our being allowed to return to our efforts to sell the bonds,” according to the firm’s statement.

Humphrey Polanen, a former fund director, told investors on a March 13 conference call that Micalizzi said the fund had “substantial” losses last year and assets may have fallen to as low as $20 million, excluding illiquid assets, according to a court petition filed in March. Polanen resigned as a director, according to a March 26 letter.

Grant Thornton, based in Chicago, said it will continue to investigate the assets, value and management of the master fund and has provided a preliminary report to the court. The liquidators said they expect to organize a meeting of creditors within the next 28 days to report on their findings.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate in profits from money invested.

Dynamic Decisions was started in 2005 by Micalizzi, a professor of finance at Bocconi University in Milan, according to the firm’s marketing documents. He previously ran the research firm Real Options Group, which had offices in France and the US. Micalizzi received a doctorate in finance from the UK’s Imperial College London.

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