"Refco effect" hits event-driven funds


The repercussions of Refco's bankruptcy filing trickled down to event-driven strategies in October in what market players have dubbed the "Refco effect."

Event-driven strategies depend on catalysts, and "private equity funds are the ultimate event," as one investor said. But Refco's unraveling unsettled the private equity world, because its largest investor was Thomas H. Lee Partners, which took a big hit. Lee's involvement in Refco, in fact, reportedly cut the annual average return of its latest fund to 34% from 45%.

Such a loss has spurred greater caution among private equity firms, leading to a sell-off of potential