Bad Bets and Accounting Flaws Slam Hedge Funds 

Larry Robbins, the founder of Glenview Capital, a $9 billion hedge fund, captured the atmosphere of the conference, entitled, “2008 and Beyond,” with a bit of black humor. Asked what his strategy was for 2008, Mr. Robbins joked, “To get to, ‘and beyond,’ ” according to a person at the meeting. Mr. Robbins declined to comment.

Sailfish seemed like a hedge fund that might weather the storm. Before founding the fund, Mr. Fishman spent seven years working for Steven A. Cohen, the founder of SAC Capital Advisors, another hedge fund based in Stamford, Conn. Mr. Fishman called Mr. Cohen the “Michael Jordan” of the trading world.

Mr. Fishman and Sal Naro, a friend who worked at UBS, formed Sailfish in 2005, aiming to “build a better mousetrap,” Mr. Fishman said. The firm’s name is a play on their names.

The pair, both fixed-income specialists, quickly raised $1 billion for their flagship multi-strategy fixed-income fund, according to investor documents. Assets grew steadily, reaching $1.2 billion by the end of 2005 and $1.5 billion by the end of 2006, when the fund returned more than 12 percent. In July, the fund sat atop almost $2 billion, and exhibited relatively low volatility — a key factor for institutional investors.

But July proved treacherous. As the credit markets seized up, Sailfish owned seemingly safe top-rated investments, including mortgage investments, that suddenly plummeted in value.

“We are working exceedingly hard in an illiquid market to position the portfolio in a way that can withstand these conditions and enable us to participate aggressively as the market stabilizes,” Sailfish wrote to investors in August. The fund lost 12.5 percent that month.

“Wall Street was not willing to make orderly markets for high- quality short-dated paper,” Mr. Fishman recalled on Monday. “They didn’t know their own balance sheets.” (Banks have taken more than $200 billion in hits since August.)

Sailfish bounced back in September and October, but investors, alarmed by the deteriorating markets, began to take their money out of the fund. By the end of the year, Sailfish was down more than 15 percent. In January, it fell an additional 7 percent.

Last Thursday, Sailfish started to alert investors that the fund was likely to shut down, two investors said. Mr. Fishman visited investors in Chicago and California, these investors said, while Mr. Naro met with investors in New York. The fund met all its margin calls and has ample cash, said one investor who spoke with one of the principals. Neither of the fund managers would confirm that the fund was closing.

But Mr. Fishman will say what it is like to lose money for investors —including himself.

“It’s that sad dawning when you realize the market is so much bigger than you are,” he said.