By Scott Rochfort
The founder of Australia's largest listed hedge fund investment group, HFA Holdings, has blamed negative media coverage and not his company's financial position for the fuelling the recent collapse in its share price.
Despite fears HFA could be forced to write down a large chunk of the $604 million of goodwill and "management rights" on its balance sheet, the group's chief executive, Spencer Young, argued his company remained in sound shape.
Mr Young blamed negative publicity of the hedge fund industry for HFA's rapidly deflating share price, which has fallen 98 per cent since its peak last July.
"I do not believe the current HFA share price reflects the true value of the company's global capabilities as a top 50 by size [fund of absolute return fund manager] or our more than 12-year successful investment track record," Mr Young said.
"The share price is more reflective of the negative media sentiment toward hedge funds generally and the lack of buying support for smaller cap companies," he said.
The company's share price closed at 4.9 cents last week, well down on its $1.10 April 2006 listing price.
The latest crisis in confidence in HFA comes after the company was forced at the start of the year to distance itself from the failed Gold Coast investment group MFS, which had helped list the group and had been a cornerstone investor.
Mr Young yesterday also criticised the media's coverage of HFA's decision last week to freeze redemptions from three of its unlisted investment funds holding $1 billion of unit holder deposits.
"Goldman Sachs JBWere, Macquarie, Select Gottex, Deutsche Bank, Credit Suisse Tremont and BT Grosvenor all froze their [hedge fund investment] funds before we did," Mr Young told the Herald.
The largest of the frozen funds, the HFA Diversified Investments Fund, had only fallen 4 per cent over the past 12 months compared to the 42 per cent slump in equity markets, Mr Young said. "We did it because we need to protect the people who are in the funds."
He declined to comment on whether the turbulence in the markets could force HFA to write down the $604 million of intangible assets on its balance sheet. He said it would be up to the company's board and its auditor, KPMG, to decide whether the current valuations were appropriate. The intangibles make up 89 per cent of the company's total assets.
About $593 million of the intangible assets was inherited from its takeover of the US fund manager Lighthouse Investment Partners last year. Last week Lighthouse said it had been forced to set up a special purpose vehicle to hold its illiquid investments.
Early this month Ord Minnett "conservatively" estimated a write-down of $120 million was possible. But the broker said the non-cash write-down would not affect HFA's operations or debt covenants.
Mr Young said HFA had no issues about servicing the $US130 million ($191 million) debt facility, despite the recent fall in the Australian dollar, given two-thirds of its earnings came from the US. But he said the company would attempt to change some of the terms of the debt, after already getting Westpac to change one of the covenants on the loan. "We're ... renegotiating ways of making the debt less confronting to the market."