Jan. 17 (Bloomberg) -- The main hedge fund of Sailfish Capital Partners LLC, run by former SAC Capital Advisors LLC bond trader Mark Fishman, has lost about half its assets since July because of soured investments and clients pulling money, according to two investors.

Sailfish's Multi-Strat Fixed Income fund, which had $1.9 billion in July, fell 13.5 percent last year on credit bets, the investors said. The Stamford, Connecticut-based firm, co-founded by Sal Naro, UBS Securities LLC's former co-head of global fixed income, fired mortgage and convertible-bond traders after losing more than 12 percent in August.

Clients pulled about $400 million from the Multi-Strat fund this month alone, cutting assets to $980 million. Following the declines Sailfish faces stricter lending requirements that could hurt returns, prompt more withdrawals and make fund-raising difficult. Clients hadn't been able to make redemptions until Sailfish's two-year anniversary in August.

``The August lows scared the heck out of hedge-fund clients,'' said Bill Grayson, president of Falcon Point Capital LLC, a San Francisco-based investment firm.

Fishman, 47, Sailfish's investment chief, left SAC in March 2005. He and Naro, who are co-chief executive officers, declined to comment. The investors asked not to be named because the fund is private

Sailfish lost money as mortgage defaults increased and credit markets seized up. It fell 4.8 percent in December. The fund's full-year loss compared with the 10.2 percent average gain by hedge funds, according to Chicago-based Hedge Fund Research Inc. The fund is little changed since inception.

Flight to Safety

The implosion of the subprime-mortgage market last year sent investors fleeing from all but the safest government bonds and triggered the collapse of credit hedge funds including Boston-based Sowood Capital Management LP, which lost $1.5 billion, and two pools managed by New York-based Bear Stearns Cos.

Hedge funds' use of debt had been propping up the value of credit assets and may amplify losses, said Martin Fridson, chief executive officer of FridsonVision LLC, a high-yield research firm. When managers lose funding from banks, asset values decline quickly because investors are forced to sell into a market where other funds are also cutting back on their use of leverage, he said.

``If you're getting margin calls, withdrawals from the fund and your internal risk-management people are getting nervous, everyone who's a potential buyer is in the same situation,'' Fridson said in an interview from his New York office. ``The market has to adjust to the non-artificial price.''

SAC, UBS Roots

Fishman previously was fixed-income director at SAC, the Stamford-based firm started in 1992 by Steven Cohen. He joined SAC, which oversees $15 billion, in 1998 and traded investment- grade and the highest-rated speculative-grade debt. Speculative- grade, or junk, bonds are those rated below Baa3 by Moody's Investors Service and BBB- by Standard & Poor's.

Naro was head of global credit trading at New York-based Bear Stearns Cos. before he joined UBS AG. At UBS he held positions including global head of credit trading and global head of credit derivatives before being promoted to co-head of global fixed income at UBS Securities in Stamford in December 2004.

At Sailfish, Naro helped oversee structured credit and European fixed-income trading.

Silver Marlin CDO

Sailfish last year started managing collateralized debt obligations, which repackage bonds, loans and other debt into new securities. Sailfish raised $1.25 billion in March for the Silver Marlin High Grade CDO, which is backed by high-quality residential mortgage-backed securities, according to Fitch Ratings.

The firm closed its stock fund, which had about $80 million in assets, after about a year, according to an investor.

The Sailfish Multi-Strat fund returned just more than 12 percent in 2006, according to investors. That compared with the 13 percent average gain of hedge funds globally that year, according to Hedge Fund Research.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Managers typically charge management fees of 2 percent of assets and a performance fee of 20 percent of investment gains.

The industry managed $1.9 trillion as of Dec. 31, according to Hedge Fund Research.

To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net.

Last Updated: January 17, 2008 16:01 EST