December 15, 2016 / 9:37 PM / 7 months ago

Exclusive: Folger Hill seeks cash infusion after losses - sources

NEW YORK (Reuters) - Hedge fund Folger Hill Asset Management continued to lose money in November, prompting lead backer Leucadia National Corp. (LUK.N) to now seek fresh money from investors in exchange for an ownership stake in the struggling hedge fund firm, people familiar with the matter told Reuters on Thursday.

Folger Hill’s main fund fell about 9.0 percent last month and is now down about 15.3 percent this year through November, according to private fund documents seen by Reuters.

The fund also fell 3.5 percent last year, its first in operation after being formed in 2014 by former SAC Capital Advisors chief operating officer Solomon Kumin.

Assets managed by the stock-picking fund's U.S. unit declined to approximately $600 million as of Thursday, down nearly half from $1.1 billion at launch.

Leucadia committed $400 million of that initial capital in exchange for an ownership stake and now wants Boston and New York-based Folger Hill to diversify its investor base, according to the people familiar with the situation who requested anonymity because the information is private.

Executives from Leucadia, the parent company of investment bank Jefferies Group, and Folger Hill have been meeting with prospective investors seeking to raise several hundred million dollars from a single new client or a small group of them, one of the people said.

Folger Hill got a boost in November when Schonfeld Strategic Advisors, the personal investment firm of trading magnate Steven Schonfeld, and Leucadia committed a combined $500 million to its new business in Asia.

Kumin’s firm has drawn approximately $150 million of that already for Folger Hill Asia, a standalone operation and fund led by SAC and Point72 Asset Management veteran Angus Wai in Hong Kong. The Asia unit now has five portfolio managers and will have nine or ten by mid-2017, according to two of the people.

In the United States, Folger Hill has fifteen portfolio managers after starting the year with seventeen. Two were dismissed following large losses over the first three months of 2016, according to one of the people.

The 9.0 percent loss this November, Folger Hill’s worst month ever, was mostly the result of short positions against North American stocks, including companies in the consumer discretionary and financial sectors, according to investor materials seen by Reuters.

Folger Hill is not the only large multi-manager hedge fund to struggle this year despite a strong stock market rally in the wake of Donald Trump's U.S. presidential election win.

Blackstone Group’s Senfina Advisors fell about 6.0 percent last month and is now down about 24 percent this year through November. Balyasny Asset Management’s Atlas Global fund also fell slightly in November and is down about 1.65 percent this year through November.

Other big names have produced small profits for their clients. Citadel’s flagship Wellington fund is up 3.14 percent this year through November. Millennium Management’s International Fund is up about 2.6 percent over the same period. And UBS Group’s O’Connor hedge fund is up nearly 4.0 percent through mid-December.

Such hedge fund managers use large numbers of small investment teams and centralized risk oversight to keep bets on securities increasing in value, or long positions, roughly in balance with those on them declining, or shorts.

The strategy also uses leverage, or borrowed money, which can exacerbate losses if risks are not properly controlled. The so-called market-neutral approach is supposed to preserve client money in any market environment.

Editing by Carmel Crimmins

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