Nov. 11 (Bloomberg) -- Tontine Associates LLC, the investment firm run by Jeffrey Gendell, plans to liquidate two stock hedge funds after they lost more than two-thirds of their value this year, people familiar with the matter said.

Gendell gave no timetable for unwinding the funds, Tontine Capital Partners LP and Tontine Partners LP, during a conference call yesterday with clients, according to the people, who asked not to be named because the information is private. Options for raising cash include selling the funds' investments privately or pushing the companies in which they are the biggest shareholder to sell themselves.

Tontine, based in Greenwich, Connecticut, had been one of the industry's best performers, with its four funds returning an average of 38 percent annually since opening. Tontine Capital Partners plunged 77 percent this year through October and Tontine Partners fell 67 percent through September.

``The combination of falling commodity prices, massive anticipated hedge-fund redemptions and the seizing up of the credit markets cause an enormous dislocation in our portfolios,'' Gendell, 49, wrote in a letter to clients last month. The firm managed $7 billion at the end of 2007.

Gendell, who will continue to run Tontine Financial Partners LP and Tontine-25 funds, declined to comment. The liquidation was reported earlier today by cable-television network CNBC.

Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 15.5 percent this year, according to Hedge Fund Research Inc. of Chicago. Firms including Ospraie Management LLC, Drake Management LLC and Sunova Capital LP are liquidating hedge funds after posting losses this year.

Funds Closing Doors

An estimated 700 funds may go out of business by the end of the year, an increase of 24 percent from 2007, Hedge Fund Research has said.

For eight companies in which Tontine is the largest holder, the firm may try to sell its stake privately to another buyer, or push the company to put itself on the block, according to documents filed yesterday with the Securities and Exchange Commission.

The eight companies are: Miscor Group Ltd, Broadwind Energy Inc., Exide Technologies, Neenah Enterprises Inc., Integrated Electrical Services Inc., Patrick Industries Inc., Innospec Inc., and Westmoreland Coal Co.

Tontine may also transfer its shares in these companies to investors, the filings said.

Gendell, a former sports reporter for the Associated Press, previously worked as head of stock investing at Odyssey Partners LP, an early hedge fund started by the late Jack Nash whose alumni include John Paulson of Paulson & Co.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net

Last Updated: November 11, 2008 18:17 EST