Several hedge funds run by flamboyant Key Biscayne trader John Devaney that were worth more than half a billion dollars last year have been wiped out, leaving wealthy investors with nothing.
About 150 investors -- some of them his Key Biscayne neighbors -- have lost roughly $510 million, said Devaney, chief executive officer and senior portfolio manager for United Capital Asset Management. ''Most of the investors were institutions.'' Devaney said in an interview Wednesday. "There were a few high-net-worth individuals who had losses. I was the second biggest investor in the fund.'' The collapsed hedge funds -- Horizon Fund, Horizon ABS Fund, Horizon Fund III and Horizon ABS Master Fund -- invested in junk bonds.
About 150 investors -- some of them his Key Biscayne neighbors -- have lost roughly $510 million, said Devaney, chief executive officer and senior portfolio manager for United Capital Asset Management. ''Most of the investors were institutions.'' Devaney said in an interview Wednesday. "There were a few high-net-worth individuals who had losses. I was the second biggest investor in the fund.'' The collapsed hedge funds -- Horizon Fund, Horizon ABS Fund, Horizon Fund III and Horizon ABS Master Fund -- invested in junk bonds.
Devaney, 38, a prominent bon vivant, put his personal losses at more than $100 million. Before his funds began to sour, he owned multiple homes, yachts, a $35 million Gulfstream jet and a collection of Impressionist art.
According to a letter Devaney sent to investors Wednesday, the ultimate blow came at the end of June when Deutsche Bank, the funds' key lender, issued a margin call -- or demand for additional collateral -- after deciding the existing securities had declined in value.
When his funds could not ante up the additional collateral, the bank declared the loans in default and auctioned the bonds. Devaney said the funds' other lender, Pershing -- a unit of Bank of New York -- then cut off lending to the funds.
''The recent actions of our lenders have now permanently ended any recovery that might have been available to the funds,'' he wrote.
Troubles first surfaced last July when Devaney took the extraordinary step of halting withdrawals, citing a rush to the exits by investors amid subprime mortgage woes.
At that time, Devaney told investors he wanted to avoid selling off the investments at fire-sale prices in hopes they would rebound as the bond market normalized. But the bond market hasn't come back.
Devaney, the son of a local lawyer, started his brokerage firm, United Capital Markets, in the Florida room of his Key Biscayne home in 1999. The business blossomed quickly, making $110 million in profit in 2003 and almost $100 million in 2004, according to Devaney. He added the asset management unit in 2005.
At first, the hedge funds also proved highly profitable, making more than a 40 percent annual return during 2005 and 2006, Devaney said.
GENEROSITY
He also became a philanthropist, funding a host of causes, including the Key Biscayne Community Foundation, which put him in close touch with movers and shakers on the island.
''He was extremely generous with the community, often requesting that he remain anonymous,'' said Patricia Weinman, a village council member.
``He contributed to practically everything.''
In a fundraiser for the Key Biscayne Community Foundation, Devaney donated a free ride on his private jet to the highest bidder. He and his wife Selene also pledged to match donations to the foundation -- up to $1 million.
When his hedge funds ran into trouble last year, it was among the first signs the subprime-mortgage debacle was wreaking havoc on the funds, largely unregulated entities that invest money for institutions and wealthy clients.
After freezing the funds last July, Devaney began selling off personal assets, including a 142-foot yacht called the Positive Carry, and the jet.
He also put up for sale a 16-bedroom Aspen, Colo., vacation property and listed for sale a number of waterfront residential properties on the key.
''We put a lot of properties on the market -- my father-in-law's, my mother-in-law's, my sister-in-law's, my mother's,'' Devaney said.
``My home is not for sale.''
He said he spent millions of dollars of his own money over the past year in a bid to keep the funds afloat in hopes that the bond market would recover.
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