Investors were alarmed by the well-publicised problems in the US asset-backed securities (ABS) sector, with the Bear Stearns bailout of two of its high-grade ABS funds and the winding down of Dillon Read by UBS.
The redemption freeze affects four funds in the Horizon programme, headed by founding partner John Devaney. The funds are: Horizon Fund LP, Horizon ABS Fund LP, Horizon ABS Fund Ltd and Horizon ABS Master Fund Ltd.
Unlike the other recent crises, the action does not stem from mark-to-market losses or margin calls on the lending side, but from investor skittishness towards structured ABS. That has led to the increased redemption requests, including one from a single investor that accounts for nearly a quarter of the firm's assets under management.
Due to increased liquidity, redemption and pricing risk over the entire sector, the Horizon funds cut down cash bonds and all synthetic positions in June this year, said United Capital in a statement. All Horizon's positions in the ABX Index and synthetic ABSs have been closed down due to increased volatility.
The manager stressed that it sees the action as a temporary measure and that it has decreased leverage on the funds. There is more than $145 million of cash available for funding on the lending side, though losses are expected for June and the rest of the year.