The hedge funds such as RAB who are being swamped by redemptjons are forced to sell, to payout the redeemers, sell where ever they can.

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RAB Chief Philip Richards Steps Down as Fund Stumbles (Update3)

By Tom Cahill

Sept. 4 (Bloomberg) -- RAB Capital Plc said Chief Executive Officer Philip Richards will step down after almost seven years to ``focus exclusively'' on running RAB Special Situations, the hedge fund that has lost 38 percent of its value this year.

Richards, 48, who co-founded RAB in 1999, will be replaced by Stephen Couttie,50, who has been chief operating officer of the London-based hedge-fundmanager since July 2005, RAB said in a statement today.

SpecialSituations, the largest of RAB's funds with about $1.5 billion undermanagement, has been hurt this year after it invested in Northern Rock Plc, a mortgage lendernationalized by the U.K. government, and small natural-resourcescompanies. Richards will continue to run RAB's Global Mining andResources Fund, which he started at the end of 2007.

``This is a sensible, and arguably overdue, clarification of roles at RAB and should be welcomed,'' Rae Maile,an analyst with JPMorgan Cazenove Ltd. in London, wrote in a note toclients. ``It obviously cannot address the concerns of the poor recentperformance. The recent weakness of commodities doesn't inspire muchconfidence in an imminent revival.''

RAB, which declined 5pence, or 1.3 percent, to 37 in London trading, has dropped 68 percentsince its high of 125 pence on July 20, 2007. The stock is still 50percent higher than its initial-public-offering price of 25 pence ashare in March 2004.

Investors Pull Funds

RAB's fundinvestors have been pulling money as Special Situations has stumbled.Assets under management at the end of June fell 12 percent to $5.9billion from a year earlier, with Special Situations shrinking by $626million, the biggest nominal drop of any fund managed by the company.

Thecompany's assets dropped another 12 percent in the four weeks since theperiod ended, falling to $5.4 billion as of July 24, RAB said in a July30 statement.

Richards is RAB's largest single investor, with132 million shares, or 27 percent of the company, according to filingsdated April 4.

Other hedge funds have suffered losses amid declines in stock and commodity prices. Ospraie Management LLC, the investment firm run by Dwight Anderson,will close its biggest hedge fund after slumping 38.6 percent this yearbecause of bad bets on commodity stocks. The New York-based OspraieFund fell 26.7 percent in August after a ``substantial sell-off'' inenergy, mining and resource equity investments, Anderson said in aletter to investors on Sept. 2.

Morgan Stanley analyst Huw van Steenis in London estimates a 10 percent drop in hedge-fund performance translates to a 20 percent drain of capital.

``There's a massive rotation between winners and losers, as well as big redemption risk'' Van Steenis said in an e-mail.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: September 4, 2008 12:01 EDT