Credit Woes Topple Sowood

Hedge fund manager Sowood Capital Management is looking down the barrel of a credit crisis.

The $3 billion Boston-based investment vehicle, which has been upended by risky bets in the credit market, is unwinding, according to a letter to investors from founder Jeff Larson obtained by TheStreet.com.

Sowood's funds Sowood Alpha Fund and Sowood Alpha Fund saw half their values wiped out, declining 56% and 51%. The net asset value of the funds is approximately $1.5 billion, according to the letter.

"We understand this is a very difficult moment for you and are committed to keeping all lines of communications open," Larson writes in the letter. Key staff are expected to be retained to manage the process of selling the company's remaining assets, it says.

Sowood has hired New York-based firm Abernathy & MacGregor Group to handle public relations. A spokesman at the firm declined to comment and calls to Sowood officials were not returned.

Last week, creditors came calling for Sowood, which informed its investors that it had been forced to sell some of its investments to provide its lenders more collateral. The problem is that the funds were forced to sell off assets at deeply discounted prices, given the dwindling appetite for credit that the debt market has been faced with as of late.