Drake to liquidate flagship $2.5 bln hedge fund

By Dane Hamilton

NEW YORK (Reuters) - Drake Management LLC, the investment firm founded by former PIMCO and BlackRock executives, is liquidating its flagship, $2.5 billion fixed income hedge fund after heavy losses over the last year, the firm told investors in a note this week.

Drake, which manages some $12 billion overall, last month told investors it was considering liquidating the "macro" fund, Global Opportunities, after it lost around 25 percent in 2007 and sunk another 10 percent through March this year.

The fund, which trades fixed income, currencies and other securities, posted losses amid volatility in global debt markets shaken by the collapse of the subprime mortgage and derivatives market.

New York-based Drake previously barred investor redemptions after Global Opportunities and two other Drake hedge funds suffered "sharply negative performance" in the face of "extreme volatility of certain capital markets over the last six months," it said last month.

In the latest, April 30 letter obtained by Reuters, Drake said it polled investors and decided to liquidate and return capital to its clients, most by the end of the year.

But it also said it would establish new funds this year for those wishing to continue allocations to the strategy.

"Having considered the views of all investors," Drake said it decided to "begin an orderly wind down and return of investor capital." The funds are managed by Anthony Faillace and Steve Luttrell.

The Drake liquidation is the latest in a series of fixed income hedge funds that have faltered or collapsed in the wake of the mortgage market fallout. Multi-billion dollar hedge funds managed by Peloton Capital, Russell Investments, Blue River Asset Management and others have all liquidated in recent months.