Thursday, July 5, 2007

Low bids for Bear Stearns Hedge Funds

Investors in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund, one of the two troubled hedge funds that have been making the news lately, are trying to sell their holdings at fire-sale prices. Unfortunately, the best bid so far is 5 cents on the dollar, much less than the 11 cents investors hoped to get.

The other, “less geared” fund, called High-Grade Structured Credit Strategies Fund is attracting bidders at 30 cents, compared to the asking price of 70 cents on the dollar. Both these funds are backed by subprime mortgages and highly leveraged, meaning that their market price was probably much lower than their estimated value. The low bids are indicative of the risk associated with the subprime business and all securities backed by mortgages. Looks like troubles in subprime are spilling over to other sectors after all.

And now, something economists feared is already happening. Another hedge fund seems to be heading the same way as the two Bear Stearns funds. United Capital Asset Management is suspending redemptions from its Horizon funds, without liquidating them – for the time being. The funds’ manager, John Devaney, predicted the current turmoil in the sector, but couldn’t avoid running into trouble.

No comments: