July 3 (Bloomberg) -- John Devaney, who invests in subprime mortgage bonds, halted redemptions in some of his Horizon hedge funds to cut the odds they'll be forced to dump more holdings.

``We have received an unusually high number of redemption requests,'' Devaney's United Capital Markets Holdings Inc. said today in a statement. One investor wanted to withdraw about a quarter of the money-losing funds' money. The Horizon funds, which aren't being liquidated, last month sold off a ``large amount'' of securities and also closed out derivative bets on subprime-mortgage bonds at a loss, the company said.

The Key Biscayne, Florida-based firm oversaw $620 million in the fund group on March 31, an April client letter to investors said. Devaney's stated strategy is to buy subprime-mortgage bonds and other asset-backed securities when they've fallen out of favor. A decline in prices amid an increase in home-loan defaults picked up last month as two hedge funds run by Bear Stearns Cos. collapsed. Losses on subprime-loan bonds may total $90 billion, analysts at Frankfurt-based Deutsche Bank AG said last week.

Devaney ``prides himself as a risk-taker, someone who sticks himself out there,'' said David Castillo, who trades asset- backed, commercial-mortgage and so-called collateralized debt obligations, or CDOs, at Further Lane Securities in San Francisco

The Bear Stearns funds, at least one of which halted redemptions in May, faltered as their $10 billion in borrowings magnified falling values for high-rated bonds linked to risky mortgages. The problems at those funds contributed to a ``dramatic widening'' of risk premiums for the types of bonds owned by the Horizon funds, United Capital said.

Lower Leverage

The Horizon Fund L.P., Horizon ABS Fund L.P., Horizon ABS Fund Ltd. and Horizon ABS Master Fund Ltd. will keep operating, as will United Capital's asset management arm, the firm said.

The Horizon funds today have ``in excess of $145 million of cash'' as a cushion against current lending requirements. They will probably be down for the year after reporting a June loss, the company said.

The Horizon ABS L.P. and Ltd. funds had borrowed 2.5 times equity as of March 31, according to client letters.

The risk of margin calls has increased in the past month for funds invested in structured finance, United Capital said today.

Lenders often demand more cash or securities from a fund experiencing redemptions or losses, to maintain collateral levels. Last month, Bear Stearns agreed to take over $1.6 billion in remaining loans to one of its money-losing hedge funds and is liquidating a second one after they failed to meet margin calls.

Lender Support

Merrill Lynch & Co., the first lender to the Bear Stearns' hedge funds to seize and sell collateral in a public auction, is the prime broker to Horizon ABS and other United Capital funds, investor letters say. Merrill Lynch spokeswoman Terez Hanhan declined to comment today. ``We have spoken to our lenders and they are supporting our efforts,'' United Capital said.

The Horizon ABS offshore fund, which gained almost 40 percent last year, fell 5 percent in the two months ended May 31, data compiled by Bloomberg show. The fund trailed the average gain of fixed-income hedge funds through May, advancing 0.27 percent, compared with the 3.7 percent advance of fixed-income managers, according to Hedge Fund Research Inc. in Chicago.

Buying Cheap

In April, 12 percent of subprime mortgages in bonds were late by at least 90 days or already defaulted on, according to Friedman Billings Ramsey Co. in Arlington, Virginia. That's up from 5.37 percent in May 2005, and the highest since 1997. Subprime home loans are given to borrowers with poor credit or high debt, and then usually packaged into bonds. Those bonds are often repackaged into CDOs, which Devaney also bought.

Devaney, 37, a former trader at Miami-based brokerage Capital International Securities Group, founded United Capital in 1999 as a broker-dealer specializing in low-rated and distressed asset-backed bonds, CDOs and various types of mortgages securities.

At Capital International, Devaney made money buying asset- backed bonds on the cheap after the 1998 collapse of hedge fund Long-Term Capital Management. After the Sept. 11 terrorist attacks in the U.S., United Capital ``stood there waiting to make a bid'' on aircraft-lease securities as insurers and other investors dumped them because of ratings downgrades, Devaney said in an interview in November.

Devaney has hosted parties at industry conferences with musicians and celebrities. United Capital sponsored the 2006 American Securitization Forum Industry Dinner, headlined by actor-comedian David Spade. ``Tonight Show'' host Jay Leno was the featured star the year before, also sponsored by the firm.

Subprime-linked declines this year have prompted the closures of UBS AG's Dillon Read Capital Management LLC hedge- fund arm and Caliber Global Investment Ltd., a $908 million fund managed in London by Cambridge Place Investment Management LLP.

Hedge funds are private, largely unregulated pools of capital whose managers participate substantially in profits from money invested. Assets managed by the funds globally more than doubled in the past five years to almost $1.6 trillion as of the first quarter, according to Hedge Fund Research.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; Jenny Strasburg in New York at jstrasburg@bloomberg.net.

Last Updated: July 3, 2007 14:57 EDT