Basis Capital (AU) Hedge Fund - Losses of 80+%

Discussion in 'Economics' started by MattF, Aug 15, 2007.

  1. MattF


    add another to the list...

    Aug. 15 (Bloomberg) -- Basis Capital Fund Management Ltd. told investors losses at one of its hedge funds may exceed 80 percent as the U.S. subprime mortgage rout prompted creditors to force the Sydney-based company to sell assets.

    Basis Capital is unable to ``accurately estimate'' the value of units in its Yield Fund, the hedge fund said today in a letter sent to investors and obtained by Bloomberg News. The losses have worsened since a month ago, when it said the fund may decline more than 50 percent. The firm managed $1 billion in March.

    ``Any fund with securities backed by lower quality U.S. mortgages is having trouble finding prices and valuations,'' said James Alexander, who helps manages the equivalent of $9.9 billion at AllianceBernstein Holding LP in Melbourne.

    Mitsubishi UFJ Financial Group Inc., Japan's largest bank, also reported losses today sparked by the subprime crisis. Asian stocks slumped to a three-month low on concern that falling credit markets may trigger a wider slowdown in economic growth.

    ``The situation in global structured credit markets remains fluid and uncertain,'' Basis said in the letter.

    Grant Harris, head of research at Basis Capital, declined to comment today.

    The firm hired Blackstone Group LP last month to negotiate with creditors to prevent a fire sale of its assets after Bear Stearns Cos. was forced to liquidate hedge funds.

    `Toxic Waste'

    The Yield Fund had A$308 million ($255 million) under management as at March this year, according to Zenith Partners, a Melbourne-based funds research company. Basis had more than $1 billion spread across four funds at that time, Zenith said.

    Basis Capital's financiers have increased margin requirements ``as a result of a global market-wide increase in risk aversion and a general desire to reduce their exposure to these markets,'' the letter said.

    The hedge funds ran into trouble by investing in the unrated, riskiest portions of collateralized debt obligations and then leveraging the investment. The portions, also known by bankers as ``toxic waste,'' are first in line for any losses when borrowers fall short on mortgage payments.

    While sales of CDOs -- used to pool bonds, loans and their derivatives into new debt -- rose fivefold to $503 billion last year from 2003, investor appetite for the securities is now waning.

    Delinquencies on U.S. subprime mortgages, or home loans to people with poor credit, surged to a 10-year high this year after borrowing costs rose.

    Bear Stearns, the fifth-largest U.S. securities firm, said last month that investors in its two failed hedge funds would get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages.

    Demand Wanes

    The losses triggered a selloff across credit markets because of concerns that CDO declines would mean losses for holders of even the least risky debt and that fewer sales of new CDOs would reduce demand for bonds and loans.

    Rams Home Loans Group Ltd., an Australian lender, yesterday said its 2008 profits may be cut because the deepening crisis in the credit markets has driven up the cost of short-term U.S. debt, its biggest source of funding for its loans. Rams' have slumped 46 percent since listing July 27.

    Australia's benchmark stock index slumped 3 percent to a five-month low 5,788 today. It has dropped 9.9 percent from its July 24 record.

    Sydney-based hedge fund Absolute Capital Group Ltd. has also been caught in the rout and halted redemptions from two funds to avoid a sale of assets at distressed prices.

    Commonwealth Bank of Australia, the nation's second-largest lender, has ``miniscule'' exposure to the U.S. subprime market, Chief Executive Officer Ralph Norris said in an interview today. The bank's second-half profit rose 18 percent to A$2.28 billion on increased corporate lending.

    Five Star

    The Basis Capital funds, which were open to individual and institutional investors, had the highest five-star ratings from Standard & Poor's before the ranking was put ``on hold'' July 17.

    Basis Capital's Aust-Rim Diversified Fund, which had A$332 million under management at March, is not in default and is meeting margin calls, the fund said in the letter. Redemptions have been halted in both funds.

    The two Australian domiciled funds invest in Basis's two offshore funds, which held a combined $1.03 billion at March this year, according to Zenith.

    Basis was founded in 1999 by Steve Howell and Stuart Fowler, who worked together at County NatWest. It was named ``Fund of the Year'' at the 2005 AsiaHedge awards and Macquarie Bank Ltd.'s ``Skilled Manager of the Year'' in 2004.

    Hedge funds in Australia are open to retail investors, unlike in the U.S. where the largely unregulated pools of capital are generally limited to institutions and wealthy individuals. The funds' managers participate substantially in any gains on the money invested.
  2. 5 stars hey :))))))))))))))))))