UBS Winds Up Hedge Fund Unit After Losses

by Phillip Morton, Investors Offshore.com

07 May 2007

UBS has announced the reintegration of Dillon Read Capital Management Portfolios (DRCM) into the investment bank after racking up heavy losses during the first quarter of 2007. Outside investor funds are to be redeemed, the bank said.

UBS said last week that the proprietary funds currently managed by DRCM within Global Asset Management will transition to the investment bank. DRCM’s principal finance, credit arbitrage and commercial real estate businesses will be merged with relevant business lines within the investment bank. DRCM’s third party funds will be redeemed. UBS intends to work with DRCM investors to identify alternative investment opportunities for them.

DRCM will continue operations until the transition period is complete, which is anticipated to be in Q3 2007.

Peter Wuffli, Group CEO of UBS sexplained that: “UBS remains totally committed to alternative investment offerings for our clients. However, based on an assessment of a number of factors, we concluded that the DRCM initiative did not meet our expectations. Consequently we took this decisive action, which is in the best interests of our clients and shareholders."

"Operating a proprietary trading platform outside the Investment Bank and managing client money alongside became too complex and expensive. That, among other reasons, is why we have chosen to reintegrate DRCM into the Investment Bank and to redeem the outside investor funds," added John Fraser, Chairman and CEO of Global Asset Management.

According to Reuters, DRCM, which was set up only last year, ran up losses of CHF150 million (US$124 million) in the first three months of 2007 as the fund became another victim of the crisis earlier this year in the US subprime sector. The losses also followed some high-profile departures from the UBS's investment banking division, the report stated.

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