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Caxton Says Cutting 'Exposure'

The hedge fund says it wants to de-lever as volatility rises.

Updated from 1:30 p.m.

Hedge fund Caxton Associates has been selling assets after getting margin calls from prime brokers

JPMorgan Chase

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Goldman Sachs

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, sources said.

The $12.5 billion fund, run by Brooklyn native Bruce Kovner, is not failing, according to sources. But they say its bankers are calling for the New York-based hedge fund to put up more money, and this is pressuring the giant hedge fund company to sell some assets.

JPMorgan declined to comment. Goldman said it doesn't comment on market rumors.

But Caxton finance chief John Forbes says the firm isn't facing any unusual margin calls, though he admits the firm is cutting back its risk profile in response to rising volatility in the markets.

"We are lowering our exposure until we are more comfortable with where the markets are going," Forbes tells

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in a phone interview. "Our current

margin arrangements haven't changed in the least."

Caxton told its investors in a letter Wednesday that it is cutting its so-called value-at-risk, or VaR, figure to 0.5% at its flagship Caxton Global Investments fund. VaR is a measure of the amount of capital a firm is willing to risk losing in a given day. One way to achieve the desired level of VaR is essentially to de-leverage or sell assets. "We're reducing our exposure," Forbes says. "It has nothing to do with losses."

"We believe the last few weeks represent one of those shifts and are repositioning ourvselves to take advantage of these changes going forward," the investor letter says.

A source who has spoken to a Caxton executive says the multistrategy fund is selling assets in order to post more collateral. Rumors of a big portfolio sale in the marketplace have been spreading on Wall Street. Earlier Wednesday, the VIX index, a measure of volatility, hit its highest point in four years.

The source says the Caxton situation is not likely to upend the hedge fund. But the executives are not be happy about being pushed into the auction market, because, as the source points out, forced selling often begets more forced selling.

Volatility and credit jitteriness have caused many hedge funds to face the music, including Sowood Capital and a trio of hedge funds affiliated with

Bear Stearns


. Shopping assets in such a market environment makes a seller beholden to buyers who want to pay only deep discount prices.

Problems at Sowood Capital, run by former Harvard University investment chief Jeff Larson, demonstrate that even a diversified portfolio is no buffer when margin calls start coming.

Worries at Caxton -- which was up 3% for the year through Tuesday, according to


-- suggest that size doesn't matter, either.