Palisades Fund Nears Cliff

Mannion points out that in April, when Palisades already was deep in the red, he and Reckles each invested another $3 million in the fund. But soon after, both men tried to redeem some of their newly invested money. Mannion says they abandoned their redemption request in order to "accommodate their shareholders,'' who also wanted to take money out of the fund.

"We took the additional risk and the additional losses the fund incurred," says Mannion. "We decided to take a back seat and not put ourselves in the redemption mix with the other investors.''

But one thing that riles investors is that Mannion and Reckles keep trying to sugarcoat Palisades' missteps. In a recent letter to investors, the two partners suggested the fund's $12 million investment in OneTravel might still be worth something in the future, despite the company's bankruptcy filing.

Of course, in the case of World Health, Mannion and Reckles were sounding a similar optimistic tone when they set up the side pocket for that investment last fall. They were optimistic even though shares of World Health were trading around 25 cents when the scandal erupted last August.

"There was an awareness that the situation wouldn't be resolved in a month or two, so how do you value something going through a troubled period?'' says Mannion, defending the decision to set up the side pocket.

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