Hedge fund woes have spread to Australia: According to this morning’s Sydney Morning Herald: [Hat tip to our friend in NZ!]
A SYDNEY-based hedge fund manager that manages $US2.5 billion has put a limit on withdrawals from two of its funds that invest in risky debt products known as collateralised debt obligations, expressing fears the funds would otherwise not survive.
Limits on withdrawals on the two Basis Capital Funds Management funds were imposed after the funds fell during June, by 14 per cent for the BasisYield Alpha Fund, and 9 per cent for the Basis Pac-Rim Opportunity Fund.
[A Basic Capital] newsletter specifically singled out credit ratings agencies’ moves to downgrade their ratings for risky debts, which are being repriced in the wake of large losses stemming from US "subprime" lending to householders.
My personal favorite quote:
In its newsletter Basis Capital said its "fundamentally sound collateral" had been indiscriminately given a market price, resulting in the losses.
Basis Capital is not alone in their troubles. According to Michael Shedlock:
The warning that redemptions can be restricted comes as a series of hedge funds in the US and UK have run into trouble from the collapse in price of illiquid, or hard-to-trade, securities linked to subprime loans.
Braddock Financial, based in Denver, said last week it would close its $300m Galena Street fund because of redemption requests, while United Capital Holdings, in Florida, suspended redemptions.
Don’t expect this to be the end: Shedlock continues:
David Smith, chief investment director of multi-manager funds at GAM, said most funds had quarterly withdrawals, and they would not need to tell investors they were imposing restrictions until the money was due to be repaid.
“It is the end of September, or even December, that everyone will see just how bad it is,” he said.
These problems seem to be spreading quickly. Investors in Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund are not only locked in, but are getting bids of 5 cents on the dollar. The ask is a mere 11 cents.
Basis Capital stated:
CDOs are complex instruments and there are many risks that Basis seeks to manage on behalf of investors in order to produce a consistent positive return with low volatility.
That goal is getting tougher to meet by the day.
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Moin Twist,
someone left this comment at my blog regarding the Alpha fund
Alpha fund April news….
“Heavily discounted CDO paper has been sourced by the Fund including A rated securities at a level of Libor + 700 basis points. These bonds were trading 12 months ago at levels of L+100.
The Fund Manager continues to seek the best
sources of risk-adjusted returns including the use of innovative features within the CDOs.
The Fund has sponsored the largest European CLO to date and it is a first for the market in that it has a short bucket to
enable the collateral manager to risk manage the CLO more effectively than most CLOs allow.
This trade follows on from the long/short ABS CDO that was sponsored – which, in its use of CDO technology, was also a market – first transaction . Investment Firm and is a fully licensed securities dealer and fund manager.
“enable the collateral manager to risk manage the CLO more effectively than most CLOs allow”
lol!
Jan-Martin -
If I recall accurately, you were telling us the correct spelling was KLO
Jan-Martin-
If the manager managing risk better than most, I hate to think what must be happening to the ones that don’t manage it as well!