Hedge firm Absolute Capital to demerge Argo unit

By Laurence Fletcher

LONDON, May 14 (Reuters) - Absolute Capital Management (ACMH.L: Quote, Profile, Research) plans to demerge its emerging market credit fund business Argo Capital to disassociate it from the European hedge fund firm's recent problems, Absolute said on Wednesday. Absolute Capital said it would apply for Argo's shares to trade on London's junior AIM market within six months of the demerger.

Absolute shares fell 70 percent in one day in September after co-founder and chief investment officer Florian Homm resigned. The company then suspended investor exits from a number of equity funds in the face of heavy redemption demands. "The Argo business has been in the shadow of the ACMH (Absolute Capital) business and all its problems," Absolute Capital Chief Executive Jonathan Treacher told Reuters.

"I think that business could raise significantly more ... (assets under management) if it didn't have questions about ACMH hanging over it." Argo runs around $1 billion in assets. Absolute Capital said in September it would suspend investor redemptions and create "side pockets" -- separate investor vehicles -- for illiquid positions.

A review around the time of Homm's departure had revealed between $440 million and $530 million of its $2.1 billion equity fund assets were illiquid and could not be sold at stated market values. Treacher told Reuters investor redemptions on these side pockets may be extended beyond November.

"Possibly (they will be extended). I think it's very much down to investors and what they want to do. We could possibly create a secondary market in this, where investors can get out or stay in. We don't want to trash value just because we want to sell. "These are pink sheet shares. We own, 10, 15, 20 percent of companies ... In most we're working to get the company up to the main market or find a purchaser for all our stake. It's more akin to a corporate finance transaction." He said the more liquid "A" share classes of these funds, which allow investor exits of up to 10 percent at end-January, end-April and end-July then full exits from November, had received redemption requests for approximately 4 to 5 percent of assets in January and again in April. (Editing by David Holmes)