By Tom Cahill [] and Christopher Scinta Sept. 22 (Bloomberg) -- Lehman Brothers Holdings Inc. will take ``considerable time'' before returning assets stranded by the world's largest bankruptcy to hundreds of hedge fund clients, according to PricewaterhouseCoopers. ``This process could take several months,'' said PwC, Lehman's bankruptcy administrator in London, in a statement today. PwC said it is working ``very closely'' with the U.K.'s Financial Services Authority to sort out how much is owed to ``many hundreds of clients'' with securities tied up at Lehman. GLG Partners Inc., which oversees $24 billion, CQS U.K. LLP and Bay Harbour Management LC are among the hedge funds that used Lehman as a prime broker for borrowing stock and clearing trades. Funds with assets at Lehman probably will have to write them down when they report net asset values, according to Laven Partners LLP, a London-based hedge fund consultant. ``If your hedge fund assets have been included with Lehman's, you're in the back of a queue that's quite long,'' said Laven Partners founder Jerome Lussan. ``What's the market value of, say, $100 million that's owed to you by Lehman? I'd say it's not that great, and it's going to have to be written down.'' Bay Harbour said in a Sept. 19 court filing that money it deposited with the New York-based bank ``appears to have been siphoned from London to the U.S. as part of an $8 billion asset transfer and then ``trapped'' by the midnight bankruptcy filing. This happened ``despite repeated assurances of the integrity of the cash,'' according to Bay Harbour's objection. Repurchase Agreements Lehman was entitled to use prime-brokerage clients' securities as collateral for money it borrowed through so-called repurchase agreements, PwC said. Securities used for these purposes were mingled with Lehman's, PwC said. ``The assets, once `used,' were no longer held for the client on a segregated basis, and as a result the client may cease to have any proprietary interest in them,'' PwC said in the statement. Using securities pledged as collateral, a practice known as rehypothecation, is common, said Richard Frase, an attorney at Dechert LLP who represents hedge funds in London. ``Most investors aren't used to waking up and not knowing where their assets are,'' Frase said. ``There are several basic questions: are the assets there or not, what value do you place on them and what do you say to investors.'' `Siphoned From London' Determining which assets are Lehman's and which are clients' is ``exceptionally complex,'' Steven Pearson, a partner at PwC, said in an Internet presentation last week. PWC last week said it was trying to recoup about $8 billion in cash that Lehman's parent company in the U.S. allegedly withdrew from its European unit before the filing for bankruptcy protection. GLG, founded as a unit of Lehman 13 years ago, filed a suit in New York last week to protect assets that ``may have been misappropriated'' in Lehman's sale of its U.S. investment bank to Barclays Plc. GLG said it ``holds significant claims'' against Lehman, according to an objection filed Sept. 18 in U.S. bankruptcy court. GLG said last week it had some ``residual'' trades with Lehman that didn't clear before it filed for bankruptcy. CQS UK LLP, a London-based fund that oversees $9.6 billion, said today its convertible and quantitative-strategies fund ended its prime brokerage agreement with Lehman on Sept. 16, after the bankruptcy. CQS didn't say whether assets were stuck with Lehman. Michael Rummel, a spokesman, declined to comment. Questionable Value Some hedge fund managers have said they've had trouble getting PwC to respond to questions about their positions. ``We know there has been a problem with communications,'' said Emma Thorogood, a spokeswoman for PwC in London. `It's the sheer volume, clearly there's a lot of work to go through.'' Because many hedge funds pulled accounts before Lehman's collapse, their losses may be limited. Gottex Fund Management Holdings Ltd., a Swiss-based manager with about $16 billion invested in hedge funds, is among those who last week said the exposure to trapped assets at Lehman was ``minimal.'' To contact the reporter on this story: Tom Cahill in London attcahill@bloomberg.netChristopher Scinta in New York bankruptcy court atcsinta@bloomberg.net.
Lehman Won't Return Prime-Broker Assets for `Months' (Update2)
Monday, 22 September 2008
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