Institutional Investor's Alpha Magazine - November 2008 - (Page 34)

Daniel Zwirn Zwirn got word that a reporter had obtained a conﬁdential letter from PWC outlining the ﬁndings of the audit and intended to write a story on the troubles at DBZ. There was speculation at DBZ that Suan might have leaked the story. But Michael Tein, a Coconut Grove, Florida–based attorney representing Suan, says any suggestion that Suan would disclose conﬁdential information to a third party is “absolutely, 100 percent false. Chris would never do something like that.” Zwirn had already been discussing shutting down the Special Opportunities Fund; the press leak forced his hand. On February 21, DBZ told its investors it was closing the fund. The very next day the Financial Times ran two articles detailing the high level of redemption requests and the closure. Suan subsequently left the ﬁrm. Zwirn will not comment on who he thinks leaked the information. Neither Zwirn nor Suan (or his attorney) will comment on the nature of the settlement later reached with Suan, which ex–DBZ employees say was favorable to the former partner. 1,300-acre commercial and residential development in Sparks, Nevada, and an apartment project in Orange County, California — both ground zero locations for the mortgage meltdown. DBZ completed a cash deal to sell the SunCal properties on September 17 for an undisclosed amount. Zwirn also invested in mortgage-backed collateralized debt obligations through ZS Structured Credit Capital Management, a CDO business run by Kenneth Song in Stamford, Connecticut, that had been spun off from DBZ in 2006. At least three of the four ZS CDOs in which DBZ owns equity are now in default. For Zwirn to repair his damaged reputation, he needs to do well by his current investors. To date, DBZ has returned 12 percent of capital to investors in its offshore fund, the larger of its two main vehicles. Zwirn also still has the very real problem of the SEC investigation. In this environment regulators are keen to show that they are on the hedge fund beat. Over the past 18 months, the U.S. Congress, the SEC and other regulators have launched investigations into dozens of hedge funds. In DBZ’s case the SEC looks to be focusing on how much Zwirn knew about what happened and on how his fund communicated with its investors. “I have been involved in a lot of major corporate investigations where serious issues ﬂowed through to investors,” says former senator Rudman. “Here investors came through it pretty whole. Dan Zwirn and his management team took a terrible hit, and they are working hard to put it back together again, and hopefully they will.” As recently as this fall, Deutsche Bank considered making an investment with Zwirn, but the talks with DBZ never went anywhere, according to sources. Zwirn declined to comment on what might be in the works. But if he had it to do all over again, he says, he would structure his business more like a private equity fund, with longer lockups, which also “would allow us to do some of the more liquid things that we do.” These days, DBZ alumni hold regular reunions. Sometimes even Perry Gruss makes an appearance. They meet and trade gossip about their old ﬁrm. “It’s only been a little over two years,” says one investment professional, who was among the last to leave. “Honestly, it feels a lot longer. The last few months weren’t a lot of fun. There was frustration and disappointment. I’ll even admit to some anger.” Once every couple of months, Zwirn holds his own reunion of sorts, meeting his friend Gellert at the Elephant & Castle restaurant in Manhattan’s West Village. Brunch (the Greenwich omelet, red peppers instead of tomatoes, and a double order of hash browns for Zwirn) is followed by a movie near Union Square — whatever ﬁlm is starting next when they arrive at the theater. “Dan likes to play movie roulette,” explains Gellert. For a onetime hedge fund king who has generally left little to chance, gambling on what movie to see may provide a kind of catharsis. D — DANIEL ZWIRN an Zwirn says he misses investing. He has ﬂoated the idea by some of his current investors of launching a new ﬁrm, tentatively to be called ZLC Global, with Lee and Cutler, according to sources familiar with his plans. But Zwirn recognizes the need for patience, as the DBZ wind-down still has a long way to go. For now “This business is something I love very much. Having it suddenly damaged for no reason is sad.” his days are spent overseeing the sale of assets and communicating with clients. “It has been very stressful for him,” says his longtime friend Gellert, who runs market-neutral hedge fund Livingston Capital Partners in New York. Throughout the summer Zwirn’s lieutenants insisted the wind-down was going well. “Unlike other funds, we are voluntarily winding down,” says Lee. “It is not because we lost all of our investors’ money overnight.” Still, the fund was down more than 20 percent this year through September, as DBZ had invested in some of the hardesthit parts of the credit market. In 2005 the ﬁrm extended approximately $110 million in loans to SunCal Cos., an Irving, California–based real estate developer. Last year SunCal defaulted on the loans and DBZ took over the land, which included a 34 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2008

Institutional Investor's Alpha Magazine - November 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Risk Rewarded The Good Guys: In the Here and Now Interview: Minister of Finance Cover Story: The Agony of Dan Zwirn Strategies: The Early Birds Are Awake Strategies: The Call of Shari’a Profile: Sweet Home Chicago Research Center: What Stampede? Alpha Bytes: Centralize the Data Unhedged: Commentary: Learning from the Wreckage

Institutional Investor's Alpha Magazine - November 2008

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