Private Equity Titan Thomas H. Lee Hurt By Hedge Fund Losses


Thomas H. Lee is a private equity legend. But unfortunately his foray into hedge funds hasn’t been quite as successful. Lee set up two fund of funds whose assets have been getting crushed as the funds they invest in falter.

WSJ: Leveraged-buyout legend Thomas H. Lee, who barreled into hedge funds when the market was booming, is considering shrinking or even shutting down two funds that had $1.5 billion in assets after suffering losses of about 40% this year, people familiar with the situation said.

The 64-year-old Mr. Lee’s battered hedge funds farmed out investor money to about 110 other funds, including SAC Capital Advisors and D.E. Shaw Group. While he designed the so-called funds-of-funds to have low volatility with steady, consistent returns, Mr. Lee borrowed heavily to multiply the size of his bets, piling up debt of as much as $3.2 billion, these people said.

That strategy has backfired, with the leverage causing losses equal to about 14% of total assets in the two funds to roughly triple in size. As a result, the net asset value of the hedge funds has tumbled to slightly below its level when the funds were launched in 2005, according to one investor.

Mr. Lee has sent redemption notices to most of the hedge funds in which his two funds invested, seeking to get their money back, according to people familiar with the situation. The outside funds invest in corporate debt, commodities, emerging markets, convertible bonds and stocks. Funds of funds have been hit particularly hard with withdrawal requests, forcing them to seek redemptions from funds where they placed money. That has had a cascading effect even for hedge funds that have performed better than rivals.