Sept. 19 (Bloomberg) -- Absolute Capital Management Holdings Ltd., whose co-founder Florian Homm quit abruptly yesterday, stopped investors from withdrawing money from eight hedge funds that manage $2.1 billion.

Absolute Capital clients tried to remove more than $100 million after Homm quit yesterday, the company said in a statement today. The firm told investors they shouldn't expect to withdraw money for a year while it restructures the funds.

Seven of the pools hold over-the-counter U.S. stocks that can't be sold at the prices the firm has on its books, affecting as much as $530 million of assets. Homm, 47, managed three of the funds affected, and oversaw the others as co-chief investment officer. Shares of Absolute Capital, which has its main offices in Majorca, Spain, slumped 84 percent in the past two days.

``The proposed restructuring of the equity funds and the imposition of the lock in period will provide stability to its equity fund business,'' Absolute Capital said in the statement. ``The company has held discussions with large fund investors, who have indicated their preliminary support for the proposal.''

Absolute Capital shares dropped 56 pence, or 47 percent, to 62.5 pence ($1.23) in London, valuing the hedge-fund company at about 44 million pounds.

Discord Over Pay

Homm said yesterday he quit after directors declined to follow his lead by turning down bonuses and contributing shares to support the funds during market turmoil. Absolute Capital said today it approved the bonuses Homm recommended.

Homm didn't answer calls to his mobile phone, and Chief Executive Officer Jonathan Treacher didn't return calls to his office and mobile phone. In an interview yesterday, Treacher said he was ``surprised'' by Homm's departure. ``We never discussed him resigning,'' he said.

In an open letter to shareholders yesterday, Homm said he doesn't intend to open another fund to compete with Absolute Capital and that he remains the largest shareholder.

``It's absolutely ridiculous,'' said Philip Gibbs, who helps oversee about $37 billion, including shares in Absolute Capital, at Jupiter Asset Management in London. ``It's extraordinary to see someone holding a huge number of shares walking out like that.''

Assets under management at Absolute Capital rose to $3.25 billion at the end of June, more than doubling from a year earlier, as wealthy individuals and institutions were drawn to the funds' above-market returns and the company acquired Argo Capital Management Ltd.

Northern Rock

Homm's Absolute Octane Fund delivered annualized returns of about 35 percent since its inception in July 2005, the company said in a statement yesterday. His Absolute Activist Fund, which started in July of last year, returned 29 percent since it began, the firm said.

Under the proposed reorganization, the illiquid positions will be transferred to a new fund in which investors will get separate shares. Absolute will hire external advisers to value the illiquid assets before selling them, the company added. The other shares would track the liquid portfolio.

Investors in Absolute Capital's funds are being frozen out at the same time the Bank of England has guaranteed deposits at Northern Rock Plc, the U.K. mortgage lender that sought a rescue from the central bank last week.

Absolute Capital's fixed-income and real estate funds, which oversee a combined $1.1 billion, aren't affected by the lock-up or the reorganization, the company said.

Merrill, Fidelity

Absolute Capital bought Argo for 50.5 million pounds in January, boosting assets under management by 60 percent. The parties that sold Argo, whom the companies didn't identify, say Absolute Capital is in breach of guarantees it made as part of that purchase, Absolute Capital said today. Argo's vendors also had the right to veto any increase above 20 percent to Absolute's bonus pool.

Homm, who's 6 feet 8 inches tall, played basketball for his native Germany in his youth. He earned an MBA from Harvard University in Cambridge, Massachusetts, in 1987, and worked for Merrill Lynch & Co., Fidelity Investments, Bank Julius Baer AG and Tweedy Browne Europe GmbH.

He started Value Management & Research AG in 1993, which reached peak assets under management of $1.5 billion and was listed on the Frankfurt Stock Exchange in 1998. Homm resigned in 2001 following the collapse of merger talks with Knorr Capital Partners AG.

Homm and former Chairman Sean Ewing, 42, started the firm's first fund in 2002 and sold shares to the public last year.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporter on this story: Edward Evans in London at at eevans3@bloomberg.net

Last Updated: September 19, 2007 14:36 EDT