Polar picks up stocks from distressed hedge funds

By Laurence Fletcher

LUXEMBOURG (Reuters) - Fund boutique Polar Capital (POLR.L: Quote, Profile, Research, Stock Buzz) said on Tuesday it has been buying up mid and small-cap stocks from hedge funds forced into distressed sales, and sees further forced selling this year as tough conditions prevail.

The comments from Polar Chief Executive Mark Kary to the Reuters Funds Summit in Luxembourg come after a number of hedge funds have run into trouble as plummeting investor confidence has hit liquidity in some stocks, while tighter conditions from some prime brokers have forced some funds to sell.

Last week Netherlands-based GO Capital Asset Management said it had blocked investor exits from its 601 million euro ($950.3 million) Global Opportunities fund for a year because liquidity has dried up in the small and mid-cap stocks it holds.

"All of a sudden the environment has changed completely. We're now beginning to redeploy the long book in that mid-cap space. Because whether it's GO or Focus or I don't know who, (they) are ... being forced to sell (these stocks) and they're being sold at distressed prices.

"The dislocations you see in equity markets as a result of people getting themselves into trouble and closing funds and either they or the prime broker having to dump stock at distressed prices presents a fantastic opportunity."

Kary, who said he believes that the credit crisis could take longer to be resolved than many investors think, said further forced selling by distressed hedge funds was likely as tough credit and market conditions continue.

"We would have thought there would be a bit more forced selling," he said.

"I think a combination of general market nervousness, de-risking ..., distress elsewhere which (means) more forced sellers and perhaps a deteriorating macro environment ... you'd have thought there would be even better opportunities as we move forward."  Continued...