Hedge funds take hit playing beat-up oil sector

An oil pumpjack is shown near Tioga, N.D., Aug. 21, 2013.
Karen Bleier | AFP | Getty Images

The steep decline in oil prices is seen as an opportunity by many hedge funds. But picking out the bonds of distressed oil companies can also be a dangerous game.

Take Kamunting Street Capital Management, which is essentially going out of business following losses on high-yield or "junk" energy company bonds. The fund lost about 4 percent last year and was down an additional 2 percent this year, according to The Wall Street Journal. The exact percentage of losses related to the decline in oil and gas prices was unclear.

The Greenwich, Connecticut-based hedge fund firm is returning remaining capital to clients and will become a so-called family office to manage the investments of founder Allan Teh, according to the report and regulatory disclosures.

Also known as "K Street," Teh's funds invested in bonds from around the world with a focus on the U.S. The firm was founded by Citigroup veteran Teh in 2004 and managed $663 million as of Nov. 30, according to private investor materials obtained by CNBC.com. The fund employed 1.8 times leverage using borrowed money as of that date.

Representatives at Kamunting Street did not respond to requests for comment.