Hedge Fund

American Business Financial Services said yesterday that it completed $450 million in borrowings, easing a cash crunch at the lender specializing in high-risk mortgage loans. "We're breathing easier this afternoon," said Albert Mandia, the Center City company's executive vice president and chief financial officer. American Business Financial is paying dearly for the loans, which include $250 million from an investment group led by Lubert-Adler Management, a Philadelphia hedge fund.

New York Attorney General Eliot Spitzer announced yesterday a sweeping investigation into major mutual-fund companies, accusing them of illegal trading that may have cost shareholders billions of dollars. Spitzer said Canary Capital Partners L.L.C., a large hedge fund, agreed to pay $40 million to settle charges that it invested in the mutual funds in exchange for an opportunity to make illegal trades in the funds' shares. Canary did not admit or deny wrongdoing, but it agreed to help Spitzer's investigation.

Three women who are veterans of the financial services industry announced yesterday the formation of NewMarket Capital Partners L.L.C., an investment company in Philadelphia that will manage two new hedge funds. NewMarket is managing the funds for CMS Cos., a Philadelphia investment company that helps entrepreneurs manage their money. Patricia Young, Diana Wagner and Mindy Posoff are the founders of the new hedge funds. "We think it's a great time to launch NewMarket Capital Partners because it's anticipated that over $2 trillion will be invested in hedge funds in the next five to seven years," said Young, 48, the company's chief investment officer.

Investors who have been hurt by the stock market have searched for anything that has been making money during the last three years. For some, the answer has been hedge funds - high-risk, largely unregulated investment pools. Indeed, hedge funds gained an average of 11.2 percent annually in value the last five years, while stock mutual funds lost 1.2 percent in the same period, according to data from Van Hedge Fund Advisors Inc. Since 1990, the hedge-fund industry has grown more than 600 percent after adjusting for inflation, from $92 billion in assets to $650 billion, Van Hedge Fund Advisors estimated.

Questioning insider stock sales and "wildly illogical acquisitions" at Penn Virginia Corp., a New York hedge fund called on A. James Dearlove yesterday to resign as president and chief executive officer of the Radnor-based energy company. In a letter mailed to Dearlove and filed with the Securities and Exchange Commission, Third Point Management Co. said it wanted chief financial officer Frank Pici to take over. Dearlove did not return phone calls. The oil and gas exploration and production company's stock rose 24 cents in New York Stock Exchange trading to close at $37.24.

As an executive at Fidelity Investments, Paul Hondros once rallied the crowd at a 1992 company meeting by playing a clip from Rocky. Now, this former Philadelphia beat cop has returned to his hometown, trumpets blaring once again, as he tries to add his latest company to the list of investment heavyweights that call this region home. Gartmore Global Investments has $78 billion in assets, but, despite its large size, it is little-known in this country, especially among individual investors.

The collapse of a 23-year-old Delaware money manager's $8 million hedge fund last month has prompted investors in another of his funds to check their balances. Apex Investments, the advisory firm that Mark Yagalla has operated since he was a 17-year-old high school senior in Carbon County, Pa., attracted at least $28 million from investors over the past six years, according to a Bala Cynwyd attorney and his clients. Some investors say their accounts are several million dollars short.

Just as Foster Friess is getting the performance of his Brandywine Fund back on track, several key managers have left his Delaware firm. The four who left wanted more say at the 26-year-old firm and greater flexibility in investing choices, something their new jobs at hedge funds give them. The executives who left were research team leaders at Friess Associates, which is based in Greenville, Del., and manages the Brandywine and Brandywine Blue Funds. Andrew Graves left to start his own hedge fund, CompassPoint Partners L.L.C.

As Long-Term Capital Management LP began selling off assets yesterday in a frantic bid to survive, Washington lawmakers said they would investigate the potential risks to the economy and banking system from such hedge-fund operations. Rep. Jim Leach (R., Iowa), chairman of the House Banking Committee, announced that the panel would hold a hearing soon on the $3.5 billion private bailout of Long-Term Capital by a group of major banks and brokerage firms. At issue is whether Congress should consider imposing new controls on hedge funds.

Hedge funds, the unregulated investment pools that may have worsened the stock and bond plunge of February and March, need more study - but probably not new legislation, federal regulators testified yesterday. Hedge funds are not currently subject to federal regulations because they have fewer than 100 investors, generally wealthy individuals and instititions. Typically, they use investors' contributions as a base for large loans that can then be invested in securities and currency markets worldwide.