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Once-mighty hedge funds get dose of humility

Only a few years ago, hedge funds with brash names like Cerberus and Pirate Capital ruled the heavens as if Zeus himself threw thunderbolts at Tampa Bay companies to force them to do his capitalist bidding.

There's nothing like a nasty recession and a credit collapse to serve as great equalizers.

Once-godlike hedge funds that invested in and influenced the fates of companies here — from fast-food Checkers and restaurant phenom Outback Steakhouse to treasure hunter Odyssey Marine and ex-home builder Walter Industries — are quickly becoming mere mortals again.

Last month, market turmoil slammed hedge fund managers as more investors demanded their money back, aggravating the woes for funds already facing their worst year on record. Some analysts even blame hedge funds' liquidating their holdings for the severity of the stock market's tailspin.

So what is a hedge fund? The name has become muddy with overuse, but for starters it's a private investment fund open to wealthy investors. Such funds tend to be less regulated, invest aggressively and, as their name suggests, try to offset potential losses by "hedging" investments, mostly by short selling.

One particular hedge fund in the news, and since it's named for the three-headed dog that guards Hades has a name easy to remember, is Cerberus Capital Management. It controls Chrysler, No. 3 of Detroit's gasping trio of domestic automakers, and is right behind GM begging for billions in federal loans from a Bailouts-'R-Us Congress.

But Manhattan-based Cerberus boasts a big footprint in Florida and the Tampa Bay area, too. In 2006, Cerberus took control of 645 Albertsons supermarkets and has since sold many of them to more vibrant rivals like Publix. Cerberus also held a stake in Tampa's Walter Industries and even owned a majority share a few years ago in Tampa beer bottle manufacturer Anchor Glass.

Pirate Capital, and its accompanying Jolly Roger hedge fund of Norwalk, Conn., bought shares in Walter Industries and (supported by another hedge fund called Appaloosa Management) demanded in 2005 that the Tampa company split into three businesses or face a shareholder revolt. A year later Pirate Capital was telling Outback Steakhouse CEO Chris Sullivan that his company had "lost investor credibility" and should sell off many of its multiple restaurant chains.

The cause (Pirate) and effect (Walter did sell off its parts and became a coal business; Outback went private and put some chains up for sale) is tenuous, but the Pirate hedge fund actually got a lot of what it wanted.

Tampa treasure hunter Odyssey Marine Exploration caught the eye of hedge fund Fortress Investment last year and, as of this fall, it remained a major investor. Last week, Fortress investors got angry after the fund manager suspended redemptions from some of its biggest funds.

Bottom line? Investors 0with enough wallet clout who charged into hedge funds for higher returns are now bailing — or at least demanding lower fees. The six-year boom for hedge funds may be over.

The good news for many Tampa Bay companies is they won't be bossed around so much. The bad news? Some of these area businesses needed a hedge fund boot in the backside to run a better shop.

Robert Trigaux can be reached at trigaux@sptimes.com.

Once-mighty hedge funds get dose of humility 12/10/08 [Last modified: Wednesday, December 10, 2008 10:54pm]
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