Australia's Basis Capital has indicated that the losses incurred by its Basis Yield Fund are more extensive than previously thought. The hedge fund manager says the value of the fund has fallen by more than 50 per cent. It had previously advised of a 14 per cent fall in the fund's value during June 2007. A consortium of banks has stepped in to sell some of the fund's assets in order to reduce investors' exposure to the losses, and accounting firm Grant Thornton has been appointed to manage this process. Basis Capital has been hit by the problems in the sub-prime mortgage market in the US; Original article by Jonathan Barrett; The Australian Financial Review; 20 July 2007; page 73 Abstract by ABIX/LexisNexis More fun to come
its funny how all these funds show months and months of gains and then all of a sudden they are bankrupt. That just doesn't happen without something really fraudulent going on.
They were 'market to model' and showed gains, as trades occur due to distress sales, the securities are 'marked to market' and begin to show losses. The more trades occur on the bid, the lower the last price, pushing the model valuation metric lower.
Its very simple math actually. ABX 07-1 AAA currently at 96-98. A fund that is 10x leveraged who owns them at par is losing 4% levered 10x and investors have magically lost 40% of their investment.