DKR Capital, the $4.2 billion hedge fund, is liquidating its $100 million DKR Varik Fund. The firm hopes to complete liquidation by year-end, at which point its five-person structured credit team will depart. Concerns about performance--the fund is down about 7% since it launched this March--drove the decision, according to Alternative Investment News, a CIN sister publication. DKR created the structured credit team, led by Jawahar Chirimar, head of credit trading in Asia for Lehman Brothers, earlier this year to launch the fund.
The fund, which invested in credit default swaps, indices, credit options and credit tranches, was launched in response to the increase in size of the credit derivatives market and collateralized debt obligation issuance. "Increased market size has created both greater liquidity and more significant opportunities," Elliot Alchek, managing director of the firm, said at the time of the launch.
Varik has underperformed compared to industry benchmarks. The CSFB/Tremont Hedge Fund Index, for example, has fixed-income arbitrage--the strategy that contains structured credit--returning 49 basis points this year. Still, one investor said news of the liquidation came as a surprise. "It's not great performance, but I don't think it was so bad they had to shut it down," he said. "The fund has only been trading a couple of months. I think there was plenty of time to turn it around."
One analyst noted that although the strategy has been down most of the year, it is making a rebound. "If the fund is down 7-8%, it should be closed. Relatively speaking, they're not doing well at all and I'm sure it's not helping them increase assets." One structured credit hedge fund manager added that if DKR management can't increase the fund's assets, it is going to have a hard time competing in the space.