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7 Dec 2006

4 Billion Hedge Fund Rewrites Contract

Deephaven Capital Management, a $4 billion hedge fund is close to making a multimillion-dollar contract with Knight Capital Group.

Knight bought the hedge fund more than three years ago and Deephaven is listed on the companys website as their in house asset management business.

Deephaven is an alternative investment manager founded in 1994, with more than 120 people in Minneapolis, Hong Kong, and London. The new contracts are expected to be completed as early as next week and could give Deephaven chief Colin Smith and his deputies millions more than they previously earned.

Smith and other Deephaven managers have been in heated negotiations with Jersey City-based Knight since September. That has some investors speculating that the firms principals might separate from Knight or try to buy majority control of the firm, according to the New York Post.

Any deal struck between the two parties comes as profits from Deephaven have continued to boost Knight's earnings at a time when the traditional trading business has slowed.

In the third quarter alone, Deephaven contributed $50 million to Knight's $203 million in overall revenue - a threefold increase from the year before.

As Deephaven's assets under management surpass the $4 billion mark, the cash from management fees alone could amount to $80 million a year.

Under the current contracts, which are set to expire at the end of the year, Deephaven's management team earned roughly $20 million through September, according to an analysis by CIBC World Markets.

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