THE Bailey Coates Asset Management hedge fund, started by two former colleagues of TCI’s Chris Hohn, is struggling for survival after a series of wrong bets and tough market conditions caused crippling losses, writes Louise Armitstead.

The Mayfair-based hedge fund, run by Jonathan Bailey, 36, and Stephen Coates, 33, incurred losses of nearly 10% in April on top of a 5% fall in March and negative returns in February.

The long-short equity fund, which specialises in taking contrarian views on companies across the world, has seen its assets under management fall from $1.3 billion (£680m) last year to less than $750m.

A series of investors, from high-net-worth individuals to institutions, have withdrawn their stakes. Nearly $500m was redeemed in one month.

News of Bailey Coates’s casualty status has rocked the industry, which found April one of its hardest months since 1998. Now there are fears that market conditions and overcrowding could spark a collapse in the high-rolling sector.

One hedge-fund manager said: “This month has been brutal. The market has been sliding and big bets have not worked out, such as the non-sale of Woolworths. The real problem is that too many funds have the same bets.”

Bailey and Coates worked with TCI’s Hohn at Perry Capital. They set up their own hedge fund in 2004 and won Eurohedge’s prestigious Best New Equity Fund award last year after generating returns of more than 20%.

The managers have reacted swiftly by selling big stakes and de-gearing their portfolio.

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