01/07/2009

Deutsche Bank Shrinks Fund-of-Funds Unit

Deutsche Bank's $4.5 billion fund-of-funds unit is shutting down one of its fund series and running into serious trouble with another.

The bank's DB Advisors unit, which manages money for institutional investors, has suspended redemptions for its two main fund-of-funds lines: the Topiary series, which will be liquidated, and the DB Global Masters Fund, Deutsche's flagship multi-manager vehicle. In recent weeks, Deutsche also cut jobs in its fund-of-funds operation. People familiar with the operations say DB Global Masters will probably close as well, though a Deutsche spokeswoman denied that is the plan and insisted the bank remains committed to its fund-of-funds business.

As of Nov. 30, the Topiary series had more than $1.3 billion under management, down from more than $2.3 billion at yearend 2007. DB Global Masters was managing more than $2.2 billion, compared with its yearend total of more than $2.5 billion. One of the largest Topiary funds, DB Topiary Trust, was down 19.5% last year through November. Global Masters fell 16.3% during the same period.

Even some Deutsche investment advisors have lost faith in the fund-of-funds operation. During the final quarter of 2008, Deutsche's Private Wealth Management business removed both Topiary and DB Global Masters from its investment platform due to performance issues. Until five years ago, when Private Wealth Management began investing in outside hedge funds, almost all of the investors for DB Advisors' funds of funds came through marketers at the Private Wealth unit.

The job cuts, which occurred about two weeks ago, involved fewer than 10 employees in the fund-of-funds unit. Among those laid off was Tanya Harter, a senior analyst who covered global-macro and relative-value strategies.

Steven Bossi, head of the fund-of-funds operation, will step down on Jan. 31. Rob Parauda, head of research for long/short equity strategies, will take over for Bossi. Parauda, who joined Deutsche in 1993, has worked with Bossi for seven years. Also remaining behind is Greg Bilse, a member of the investment team.

Deutsche's move to suspend withdrawals from the Topiary and DB Global Masters funds was in response to a flood of redemption requests for yearend 2008 - many of them prompted by the funds' removal from the Private Wealth Management platform. According to a Dec. 17 letter to investors, DB Advisors' fund-of-funds managers decided to block withdrawals because the hedge funds in which they invest have themselves suspended redemptions, or are soon expected to do so.

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