'nother Hedgefund Bites the Dust!

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Highland Shuts Funds Amid `Unprecedented' Disruption (Update3)

By Pierre Paulden

Oct. 16 (Bloomberg) -- Highland Capital Management LP will close its flagship Highland Crusader Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt, according to a person with knowledge of the decision.

Highland, whose total assets under management has shrunk to about $35 billion from $40 billion in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next three years, said the person, who declined to be named because the decision isn't public. The hedge funds had combined assets of more than $1.5 billion.

The Highland Credit Strategies fund suffered from ``unprecedented market volatility and disruption,'' according to a letter to investors that was obtained by Bloomberg News. Barclays Capital Inc. seized $642 million of leveraged loans from Highland yesterday and is offering the debt for sale in an auction today, according to a person with knowledge of the situation.

Highland, founded by James Dondero and Mark Okada in Dallas in 1993, follows firms including Sailfish Capital Partners LLC and Peloton Partners LLP in closing funds after the seizure in financial markets choked off credit and sent asset values plummeting. The average price of actively traded high-yield, or leveraged, loans has dropped to 71.2 cents on the dollar from 100 cents in June last year, according to Standard & Poor's.

[Raptor Witness]

The real story isn't being reported, for fear of scaring the masses. The truth is, the balance sheets of these hedge funds are bleeding so badly, that the actual losses won't be realized until someone says ... I want my money, and they find out there isn't any. That is what is happening now. These hedge funds are having to liquidate everything to try and pretend they have real assets, when in reality, many do not.

The dominoes have only begun to fall, and the fiscal bleeding will turn into an ocean. There's nothing that can stop this train. It left the station in the Fall of 2005, when hurricane [Katrina knocked the wind out of speculation] in the real estate markets.

Edited October 17, 2008 by Raptor Witness