Tontine Associates, an $11 billion hedge fund firm run by billionaire manager Jeffrey Gendell, will close two funds, sources close to the situation told FOX Business on Tuesday.
The Greenwich, Conn.-based firm will close the Tontine Partners and Tontine Capital funds after both funds got clobbered by an ugly economy and turmoil in the financial markets.
Sources said Gendell is closing both funds because of their performance -- each is down more than 50% year to date -- rather than because of investor redemption.
Gendell, through a spokesman, declined to comment.
But sources said Tontine plans to wind down the two funds in an orderly manner in order to maximize shareholder return.
Gendell’s Tontine 25 and Tontine Financial funds will remain open.
Problems with Gendell’s funds became public in early October after a letter signed by Gendell was leaked to the public. In the letter, Gendell told investors that all of his funds have taken huge hits this year, citing the example of U.S. Steel (X).Tontine owns a 2.62% stake in the steel company, which has seen its shares fall from $200 in July to just over $30 a share.
Gendell wrote that because of the “rapid declines in our steel stocks and engineering and construction stocks, we were forced to scale down our positions.”
Gendell's fund closure is nothing new. Several massive hedge funds have seen losses this year, some substantial. Traders have said the recent sharp downturn in the markets can be partially blamed on mass selling by hedge fund as some are being forced to liquidate their stakes as quickly as possible.
Tontine Associates had been one of Wall Street’s most successful hedge funds up to this year. Gendell's firm, founded in 1997, had a 38% annualized return before bad bets turned ugly.
A potential complication with the closure of Tontine’s funds is that Tontine owns near or actual majority stakes in several small-sized companies whose shares could be hard to dispose of in an orderly fashion.
According to Securities and Exchange Commission filings on Monday, Tontine disclosed its intent to liquidate its positions in eight companies, including small-cap firms such as Broadwind Energy (BWEN), Westmoreland Coal (WLB), Patrick Industries (PATK), among others.
In one of those filings, Tontine said it plans to sell its 48.7% stake in Broadwind, a wind turbine producer, and its 57% stake in Patrick Industries, a plastics maker. Because Tontine owns such large stakes in these lightly-traded companies, if Tontine liquidated their positions it would basically destroy these companies' stock prices.
According to Tontine’s filings, the firm may dispose of the stake in those companies through an open-market sale or try to find a third party to step in to take over the stakes.
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