Laurus Smoking In The PIPEs Market

TheLaurus Family of Fundshas been making millions – one might say one penny at a time – as the New York-based hedge fund has become one of the most active investors in the private investment in public equity market, specializing in microcap companies. But,The Street.comreports, some are wondering whether the firm's strategy to invest solely in collateralized convertible bonds can continue to pay off big time.

The firm founded byDavid and Eugene Grinbears little resemblance to a hedge fund in more ways than one. According toTheStreet, Laurus is not out to make a quick buck, and rather than looking for the exit as soon as it enters, as hedge funds usually do, it stays around longer, like a commercial bank. It doesn't short its shares in companies in which it invests, either. Also, the firm has more lawyers and investment bankers than it does traders, along with a staff of 10 analysts that perform due diligence to make sure Laurus doesn't find itself in too many risky deals.

在四年左右自公司开业,其annualized returns have hovered around 20%, and the fund held in the mid-8% range near the end of 2005. But, alas, observers note that Laurus' strategyisrisky. Of the companies it deals with, an estimated 40 out of 50 have seen their stock prices drop; if and when such companies slide into bankruptcy, Laurus has to go to court to collect on its loan. On the other hand, it could end up winning the company it's suing since the companies usually put up all their assets for collateral.

Observers wonder whether an economic downturn could sink Laurus, but David Grin notes that they survived the events of Sept. 11 and a recession. Laurus' current PIPE dream appears to be starting a flood of funds from institutional investors, which have been cool to PIPEs. The firm is hoping registering with theSecurities and Exchange Commissionwill inspire confidence and make Laurus more attractive to institutional investors.