Bear Stearns Fund Failure Redux??????

Bear Stearns Halts Redemptions on Third Hedge Fund After Losses
By Yalman Onaran
July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after investors demanded their money back.
The fund had about $900 million invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said in a telephone interview. The fund probably had losses in July and was overwhelmed by redemption requests, Sherman said.
Bear Stearns has no plans to close the fund, which has $50 million in cash and gets about $13 million in principal and interest monthly, Sherman said. The fund can wait until the slump in the mortgage market is over, he said. Less than 0.5 percent of the portfolio is in subprime securities, he said.
``We don't believe it's prudent or in the interests of our investors to sell assets in this current environment,'' Sherman said. ``The fund portfolio is well positioned to wait out the market uncertainty.''
The Wall Street Journal earlier reported that the fund was up 5 percent this year through June, before its performance plummeted in July.
``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.

My favorite part: "we believe by suspending redemptions, we can ensure the best long term results for our investors."

BWAHAHAHAHA. Let me translate:

"we believe by suspending redepemtions, we can ensure that our rich ass fund manager can collect fees for another few months. Also, we can ensure that our other portfolios of horrible quality mortgage paper and derivatives is not immediately marked to market so we can pull the wool over everyone's eye's and sell just a few more pieces of this toilet paper to dumb ass fund managers. Also, we can allow enough time to take on sufficient swap hedges on the junk as we desperately try to make up for some of the lost revenue.

Frogs Caught in Pot of Boiling Water

Sweet, now we can add another domino with the French flag on it. From Bloomberg:



Oddo to Shut Three Funds `Caught Out' by Credit Rout (Update1)
By Neil Unmack and Jacqueline Simmons
July 31 (Bloomberg) -- Oddo & Cie, a French stockbroker and money manager, plans to close three funds totaling 1 billion euros ($1.37 billion), citing the ``unprecedented'' crisis in the U.S. asset-backed securities market.
Oddo said it will wind down the funds within the ``shortest possible time frame'' because of a plunge in prices for collateralized debt obligations, notes backed by other bonds, loans and their derivatives......
.......``Like many actors, we have tried to revitalize the performance of our funds by investing in CDOs,'' Arnaud Ploix, a spokesman for Paris-based Oddo, said in an interview today. ``Like others, we noticed recent problems with short-term liquidity and were caught out by the subprime dilemma.''



Ahhhhhh, those dour Frenchmen, who woulda thunk they were out there chasing yield like all the rest?



Not that I have anything against the French, I think France is great. Once I had to go to Paris for work. A dude I was working with befriended me and even though I was only there for a two day fire drill still took me out to dinner with his wife even though we'd been working until 2 Am the night before and were absolutely cooked and showed me a bit of the historic part of town and shit they even paid for my (damn expensive) dinner. Pretty fugging cool.

Sowood Capital investors take a Capital Haircut

http://tinyurl.com/yttkh6

More on this as the details trickle through.....

Another fund goes under Down Under

The Absolute Capital Yield Strategies Fund in Sydney apparently "suspended" itself today, which as we all know is just another way of saying "we are thrashing about in the final throes of and agonizing death. we were harpooned on on July 17 when the Bear Stearns funds (finally) imploded for good and we realized our capital had been wiped out. since then any efforts to stanch the hemorrhaging of blood have failed. we are now on life support, dead in all but the purest physiological sense."

Or maybe it's more like "we are stopping you from taking out your money because we can. we will collect our 2% fees for as long as we can avoid the mark to market of our worthless structured finance products because we can. we will get richer because we can. then when we are finally forced to close up shop we'll go on vacation to Fiji. fuck you all."

BREAKIN OUT THE LUBE

Right about now....some hedge fund manager is getting ready to get pounded in the ass. The funny thing is, the downgrades were small. The forced selling of 1-2% of 2006 subprime securities won't do much in and of itself. The hammer to fall first will be disbursements. See, contrary to what some of you may think, there are many investors in hedge funds that are intelligent, financially savvy, news-cognizant people. These people are looking at the last holdings report from their hedge fund manager and thinking "oh shit, he's about to get pounded in the ass, I better get my money out now". So before we see the massive downgrades that we know must come, we'll see more "hedge fund halts disbursements" headlines. Because when you're leveraged 30:1, and someone asks for their money, and you suddenly realize you cannot liquidate all these arcane structured finance products quickly, you'll do what they all do: stop paying.

DOWNGRADES

So more belated downgrades come on a slew of late vintage subprime fortified paper. I'm sure the hedge funds who got headily drunk collecting those juicy returns at 30x leverage won't really care too much if they implode, they still get to run away from their 20% over the last two years. And a bunch of pension funds will be holding the bag on the rest of the junk. Sigh.

Risk/Reward. The two should track each other. However in recent years of easy money the two have diverged to a degree never seen before. I just read today that an Iraqi bond is only paying 10% yield. You can find plenty of emerging market stocks paying nearly a 10% dividend. Why in the world would you buy the former? I guess because the debt market is even more overbought than the stock market?

Hedge funds are not evil

Many people think hedge funds are evil, due to their ridiculous compensation and seemingly insatiable greed. I dont think so. I agree with Dr. Bookstaber, who asserts in his book "a Demon of our Own Design" that hedge funds are suppliers of liquidity, and takers of risk. Financial markets need those two things in abundance to function properly. What is evil is the system. It's the system that allows these guys to leverage themselves 10, 20, 30, even 50:1 by making borrowing far to easy. It's the system that has allowed massive proliferation of ridiculously arcane, illiquid structured finance products that even the best computer models cannot value. It's the system that keeps on engineering coverups and obfuscations to mask the ugliness beneath in a rotting corporate landscape.

In the end, the proliferation of hedge funds might save us from permanent oppression by Wall Street. Because as Wall St tries to engineer coverups for structured finance blowups, there are hedge funds out there making the opposite bet (see Paulson and Co). There are powerful, independent players out there making large bets against the establishment (See Chanos shorting Moody's). These guys won't go down easy. Or quietly.

If you are dumb enough to let someone take 2 and 20 for managing your money, hey, that's fine with me. Just don't allow all this leverage to proliferate to the point where it is in danger of wiping out big banks, and hence regular Joe's like me.

*yawn* another hedgie goes down in flames...

From the WSJ:
"Investors received a letter earlier this week from Braddock Financial Corp. of Denver. It said it was closing its Galena Street Fund, which mainly invests in bonds backed by subprime mortgages extended to borrowers with poor credit, and suspending redemptions until it can sell assets in the roughly $300 million fund."

To think, this is just getting started. The true fate of the Bear Stearns funds might not be known for another 10 days. If they can't obfuscate things enough to hide the collateral damage, the systemic spread could be awful.

Who will be next to fall?

After doing some poking around, it seems TCW has the most CDO exposure. Want to bet some of that has been offloaded into it's "high yield" bond fund, or short/long term bond funds that invest primarily in mortgage instruments?

Then again, there was a really good article on goldseek that surmised that rather than who was most exposed overall, it was how late to the game the players were that mattered most. They had the list of CDO exposure by company, and postulated that the fact that BSC jumped into the top 20 from nowhere meant they were far more exposed to the risky stuff from the last year or two. Sounds reasonable to me.

OK, that didn't take long

Horizon ABS fund, a hedge fund run by United Capital Markets Holdings Inc., is apparently halting redemptions. A common tactic by hedge funds to postpone their day of reckoning. I don't know why any high net worth individual with half a brain would give their money to one of these people. Oh yeah, I forgot, GREED.

Who's next?

Rumblings of another hedge fund having trouble similar to those Bear Stearns funds.....who is it?

My first instinct is to guess one of the funds that scooped up floundering subprime lenders at a "bargain" price and is now realizing it's great acquisition won't be making them any money soon. Say, for example, Farallon. Bought a ton of LEND shares in December. Then rescued LEND with a loan so they wouldn't have to book the loss on those shares, or could put it off until they were better hedged, or somethin. Then they conspire with another hedgie to bail out LEND completely. Now both of these weasels have got to be sitting on tons of losses as tons of the subprime borrowers in SoCal appear to be in the process of barfing back their loans big time. Or do they? These guys from Farallon look way too smart to do something that appears this dumb on the outside to me....but then again those guys from LTCM were geniuses too. So, for now, until I can find some other hedgie with confirmed CDO exposure, Farallon is the guess, since outward appearances suggest that when they rescued Accredited they were simply doubling down on a bad bet.

Who the f*ck knows. My money is actually on the powers that be obfuscating things enough so everything appears fine for another few months....

The Cancer Spreads Round the World

Some Brit hedgie doing their best "rooftop of Nakatomi Tower" impression.

"The $908 million Caliber Global Investment hedge fund announced it was shutting down after its management company, Cambridge Place Investment Management, concluded that losses in mortgage and structured product bonds could not be made up. The fund is set to wind down over the next 12 months. "

KABOOM.

Holy Shit!

Wow!!! I just can't believe all the hedge funds that are dying off, one by one. Who woulda thunk that a combination of easy leverage and huge incentive to take on massive risk would ever result in disaster????