May 1 (Bloomberg) -- Drake Management LLC, the money- management firm started by former BlackRock Inc. executives, is shutting down its largest hedge fund after losses prompted client withdrawals, according to a letter to investors.

The firm said it's winding down the $2.5 billion Global Opportunities Fund, which lost 25 percent last year. Drake's managers, Anthony Faillace and Steve Luttrell, will decide on the fate of its two other hedge funds by the end of the May and plan to start a new fund this year.

``We are committed to launching successor vehicles for the funds later this year,'' yesterday's unsigned letter said, referring to the onshore and offshore versions of the Global Opportunities Fund. Current clients who want to invest in the new fund won't pay performance fees until their losses are recouped.

Drake lost much of its money last year on wrong-way bets on U.S. Treasuries, as well as Japanese bonds and stocks in developed markets, according to a year-end report sent to investors. It suspended redemptions in Global Opportunities in December and in March gave investors the option of getting their money back or transferring assets to a new fund.

Clients had voted to switch about $500 million to the new fund, the letter said. When some investors opposed splitting the assets, the firm decided to liquidate Global Opportunities.

Investors may get most of their money back by the end of the year, and the shut down is scheduled to be completed by the first quarter of 2009, the letter said.

Other Hedge Funds

Drake, founded in May 2001 by Faillace, 44, and Luttrell, runs two other hedge funds, the $1.3 billion Drake Absolute Return Fund, which fell 14 percent last year, and the $160 million Drake Low Volatility Fund. Luttrell, 42, said current investors have committed about $300 million to a new Absolute Return fund. The two managers will continue to manage $8 billion in traditional fixed-income accounts.

Faillace, chief investment officer, and Luttrell, chief operating officer, both previously worked at New York-based BlackRock and Pacific Investment Management Co. of Newport Beach, California.

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.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

Last Updated: May 1, 2008 12:35 EDT