As it turns out, the rumours and reports that Highland Capital’s flagship fund had begun a major unwind were absolutely right. Score another for the rumour mongers and CNBC reporter Charlie Gasparino.
Highland Capital Management LP will close its flagship Highland Crusader Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt, according to a person with knowledge of the decision.
Highland, whose total assets under management has shrunk to about $33 billion from $40 billion in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next three years, said the person, who declined to be named because the decision isn’t public. The hedge funds had combined assets of more than $1.5 billion.
The Highland Credit Strategies fund suffered from “unprecedented market volatility and disruption” in financial markets, according to a letter to investors that was obtained by Bloomberg News.
Highland, founded by James Dondero and Mark Okada in 1993, follows firms including Sailfish Capital Partners LLC and Peloton Partners LLP in closing funds after the seizure in financial markets choked of credit and sent asset values plummeting. The average price of actively traded high-yield, or leveraged, loans has dropped to 71.2 cents on the dollar from 100 cents in June last year, according to Standard & Poor’s.
Dallas-based Highland, the world’s largest non-bank buyer of high-risk, high-yield loans last year, also manages collateralized loan obligations and in March raised $1 billion to buy distressed loans. CLOs are created by bundling together loans and repackaging them into new securities. Leveraged loans are rated below Baa3 by Moody’s and BBB- by S&P and are used to fund private-equity acquisitions.
The firm plans to sell 20 per cent of the Highland Credit Strategies Fund’s assets in the next six months and a further 20 per cent in the following six months, the letter said.