10/29/2008

September Losses Pound HRJ Fund of Funds

A leveraged fund of funds run by HRJ Capital lost 30.9% last month, leaving it down 53.5% for the year.

The vehicle, HRJ Legends Multi-Strategy Plus Fund, invests with some of the highest-profile hedge fund managers in the world. Among them: Cantillon Capital, Centaurus Capital, D.E. Shaw, Farallon Capital, Ospraie Management, Perry Capital and Tudor Investment.

HRJ Legends was overseen by Jennifer Coffey until Sept. 25, when she left HRJ to select investments at Lasair Capital - a new multi-manager shop run by former Financial Risk Management U.S. chief Carrie McCabe. The fund is now run by Michael Merrigan, who assumed Coffey's title as head of hedge fund investing.

Merrigan started at HRJ in 2006, a few months before Coffey. Both previously worked in Credit Suisse's fund of funds group.

Merrigan also oversees an unleveraged version of HRJ Legends, called HRJ Legends Multi-Strategy Fund. That vehicle lost 7.7% in September and 16% for the first nine months of this year.

The leveraged version of HRJ Legends parks capital with 15 underlying managers overall, putting $1.90 of borrowed money to work for every $1 of investor equity. The fund's September losses reflected widespread beatings that hedge funds took amid turbulent financial-market conditions. Extreme volatility had already marked its track record, with four months of double-digit losses in 2008 alone.

The entity caught the attention of industry players as the financial crisis was beginning in August 2007, as a shakeup among quantitative equity funds caused it to lose 12.3% for the month.

HRJ isn't the only operator to run into trouble with a fund of funds that employs leverage to invest with big-name managers. Blue Alternative Asset Management, for instance, just had to gate redemptions from its leveraged Blue Elite Enhanced Fund following a January-September loss of 35%. That fund invests with some of the same managers as HRJ Legends.

HRJ's founders include former San Francisco 49ers football players Harris Barton, Ronnie Lott and Joe Montana, although Montana is no longer involved in the Woodside, Calif., firm's day-to-day business. In addition to investing in hedge funds, the $2.4 billion outfit runs funds of funds that key in on venture capital, buyout and real estate vehicles.

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