An Absolute Disaster

Florian Homm was already a stand-out in the hedge fund industry. The 6-foot, 6-inch hedge fund manager made headlines last year after he was shot during a robbery attempt in Venezuela.

The bullets are flying around Homm again after he abruptly quit the Majorca, Spain-based hedge fund he co-founded by issuing a press release yesterday. Understandably, investors in Absolute Capital's eight hedge funds, worth about $2.1 billion, promptly demanded their money back. The requests forced the remaining Absolute Capital managers to deny all investor redemptions for at least a year as the firm restructures its funds. Homm managed three funds, and oversaw the others as chief investment officer of the firm.

The Financial Times' Alphaville blog runs his resignation letter, which was sent to Absolute Capital's board at the same time it was released to the public. It raises more questions than it answers.

It starts out scary: "In the recent market, I have become concerned with the performance of certain of our funds." It goes on to remind investors that he donated his own funds to help keep the funds in the black. He also says he passed up his own bonus this year so that others in the firm would get theirs instead, and stay with the firm.

After all, finding new investment managers in Majorca can't be easy.

Homm's problem, he explains, is that Absolute Capital's board didn't agree with his employee retention plan. "However, the Board of ACMH did not agree with my arguments that ACMH needs to pay adequate compensation to retain top-level fund managers nor did they follow my lead in sacrificing personal bonuses and compensation, or in contributing ACMH shares to the funds," he writes.

But Bloomberg reports that Absolute Capital said it approved the bonuses Homm recommended. His resignation evidently came as a complete shock to them.

Homm leaves behind a giant mess and irate investors. After his announcement yesterday, shares of Absolute Capital, which trade on the Alternative Investment Market in London, plunged 70 percent after Homm's resignation yesterday. They dropped another 48 percent today after the firm said it would halt redemptions.

The firm plans to move about $530 million worth of securities it can't sell into a new fund, and hire an adviser to help it value them. But the former owners of Argo Capital Management, a firm that Absolute Capital purchased in January, now say it's in breach of guarantees it made as a part of the acquisition.

Homm's moves may have triggered an implosion, but it's unlikely that Absolute Capital has heard the last from him. "I want investors and shareholders to know that I do not intend to start another fund or compete with ACMH," his letter reads. "In fact, I remain the largest single shareholder in ACMH - with my ex-wife and children also holding substantial stakes - and I intend to continue to fight for shareholder value in ACMH and hope to contribute in that role in anyway I can."

In any role outside of the firm, that is.

by Megan Barnett