Whitebox to Liquidate Its Mutual Funds as Redemptions Rise

  • Risk to remaining investors `just too high for our comfort'
  • Minneapolis-based firm run by Redleaf oversees $3.85 billion

Whitebox Advisors, the $3.85 billion investment firm whose equity head Jason Cross resigned this month, plans to liquidate its three mutual funds on Jan. 19 after losses and redemptions in 2015.

The firm, founded by Chief Executive Officer Andrew Redleaf in 2000 and best known for running hedge funds, announced the move on its website Monday.

“It was a strategic decision,” Amara Kaiyalethe, a spokeswoman for Minneapolis-based Whitebox, said in a telephone interview. “People were redeeming and the concentration risk to our investors who were remaining was just too high for our comfort.”

The funds are all in cash and all redemptions are being met, Kaiyalethe said. Third Avenue Management rattled credit and equity markets on Dec. 9 when it said it was liquidating a $788.5 million corporate debt mutual fund and delaying distributions of investor cash to avoid bigger losses. Unlike that firm, Whitebox told customers they can redeem their mutual fund shares at any time prior to Jan. 19.

Whitebox, which closed its mutual funds to new purchases on Dec. 17, oversees the $112.8 million Whitebox Tactical Opportunities Fund, which lost 21 percent this year through Dec. 24; the $40.25 million Whitebox Market Neutral Equity Fund, down 6.3 percent; and the $20.3 million Whitebox Tactical Advantage Fund, down less than 1 percent.

Tactical Opportunities

Assets at the Tactical Opportunities fund plunged from as much as $1.1 billion in late 2014, according to data compiled by Bloomberg. The fund, established in December 2011, invested in a mix of stocks and bonds, which had an average rating of BB-, Bloomberg’s data show. About 44 percent of the portfolio was in cash as of Sept. 30.

The firm told investors in August that it agreed to sell a minority stake to a private equity fund run by Neuberger Berman Group. Neuberger’s Dyal Capital Partners purchased a passive stake in Whitebox for an undisclosed sum, according to a securities filing.

Alex Samuelson, a Neuberger Berman spokesman, declined to comment on Monday’s announcement.

Whitebox invests in a range of assets including stocks, bonds and derivatives, and espouses a low-risk strategy, according to the company website.

‘Risk Reduction’

“Risk reduction is the driver of returns, not a drag on returns,” it says. “We believe robust risk management has been the heart of our investment success from the beginning.”

Redleaf has a record of predicting credit crises. He warned investors in a December 2006 letter that the subprime mortgage market would collapse and “there is going to be a panic in credit markets.” This March, he wrote that “it is a truly scary time” because of loose credit standards, according to a memo obtained by CNBC.com.

Several funds that invested in junk bonds, energy and emerging market debt are shutting after suffering losses and redemptions as 2015 comes to a close. In the days following Third Avenue’s announcement, Stone Lion Capital Partners suspended redemptions at its $400 million credit hedge fund, and Lucidus Capital Partners said it liquidated its portfolio and planned to return $900 million to clients next month.

The BofA Merrill Lynch US High Yield Index is down 4.9 percent this year and has tumbled more than 7 percent since June 30.

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