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Farallon Flagship Fund Lost 23.8% Through October, Sells Stocks
Bloomberg - Nov 6, 2008
The firm, founded by Thomas Steyer, invests in assets from stocks to distressed debt and real estate. The main fund has climbed an average of 14.6 percent …
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Farallon Fund Down through October
Hedge Fund Net, NY - Nov 7, 2008
Farallon was founded in 1986 by ex-Goldman Sachs executive Thomas Steyer and has about $30 billion in assets under management.

Farallon Flagship Fund Lost 23.8% Through October, Sells Stocks
By Katherine Burton

Nov. 6 (Bloomberg) — Farallon Capital Management LLC’s biggest hedge fund fell 23.8 percent this year through October, according to two people familiar with the matter, all but ensuring its first annual loss since opening 22 years ago.

The firm, which oversees $30 billion, has been selling stocks to meet expected clients withdrawals and invest in distressed debt, said the people, who asked not to be identified because the information is private. The flagship Farallon Capital Partners LP fund increased its cash holdings by 30 percentage points.

The $1.7 trillion hedge-fund industry is reeling from the worst financial crisis since the Great Depression, as stocks, corporate bonds and real estate prices have all tumbled. Funds have lost an average of 19.3 percent this year, as measured by a daily index compiled by Chicago-based Hedge Fund Research Inc. Firms including Blue Mountain Capital Management LLC and Deephaven Capital Management LLC have frozen funds after being hit by a surge in redemptions.

“The market backdrop we have is the worst in a modern generation’s memory,” Peter Clarke, chief executive officer of London-based Man Group Plc, the world’s largest publicly traded hedge-fund manager, said in a conference call today.

Mary Beth Glover, a spokeswoman for San Francisco-based Farallon, declined to comment.

The firm, founded by Thomas Steyer, invests in assets from stocks to distressed debt and real estate. The main fund has climbed an average of 14.6 percent annually for the past 22 years, compared with about 9 percent for the Standard & Poor’s 500 Index. It has never had a losing year.

Lehman Effect

Steyer, 51, worked on Goldman Sachs Group Inc.’s merger arbitrage desk under Robert Rubin, the former Treasury secretary and senior counselor for Citigroup Inc., before joining San Francisco-based Hellman & Friedman in 1986. There, he ran a portfolio that invested in the stocks of merging companies, much like what he had done at Goldman. That fund became Farallon.

Farallon, like many hedge funds, posted its largest monthly losses for 2008 in September and October. After Lehman Brothers Holdings Inc. filed for bankruptcy in September, credit markets froze and stocks plunged. The Securities and Exchange Commission also temporarily banned the short sale of about 15 percent of stocks in the Standard & Poor’s 500 Index, limiting investors’ ability to benefit from falling prices.

Farallon raised $750 million earlier this year to buy troubled securities.

The firm told six outside hedge-fund firms that manage money on its behalf that it would take back about $150 million in capital. The managers, who ran about $650 million for Farallon at the start of the year, have posted returns between zero percent and a loss of 40 percent this year, the people said.

The smaller Farallon Capital Offshore Investors Inc. fund lost 28.3 percent his year through October. That fund ended September with about 39 percent of assets in investments that they consider undervalued, primarily stocks, and 30 percent in credit securities such as loans and bonds, according to a report sent to investors.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net;

Last Updated: November 6, 2008 11:57 EST

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