Pentagon Capital to shut hedge funds

By Laurence Fletcher

LONDON (Reuters) - London-based hedge fund firm Pentagon Capital said it is to shut its funds, as tough credit conditions continue to hurt the hedge fund industry.

The firm, run by Lewis Chester and Jafar Omid and which manages 1.1 billion pounds in assets, told investors of the planned closures in a letter dated March 24 and seen by Reuters on Wednesday.

A source close to the company told Reuters on Wednesday that Pentagon, which runs 17 funds including the Pentagon Sterling Multi-Strategy fund and the Pentagon High Performance fund, may close down.

The source said the firm believed its funds may suffer as prime brokers tightened credit lines following a complaint filed by the U.S. Securities & Exchange Commission, which may relate to trades carried out in 2003.

"This time last year they (Pentagon) would have been quite content to fight and carry on," the source said.

"(But) markets are so dreadful that they thought lenders for leveraged funds would get quite nervous and depart and the funds would suffer."

Investors are likely to get back most of their capital, although the timing of this will vary between funds, the source said.

Volatile market conditions and tighter lending conditions from prime brokers have put the squeeze on some hedge funds in recent months.