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Basis Capital Fund Management, Ltd. - Basis Yield Alpha - Structured credit (inc. subprime CDOs)

2007-08-29

Count of distinct funds: 1
Capital base: recently $1 billion
Loss: unknown

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stories: reuters.com, bloomberg.com, bloomberg.com, blogspot.com

Update 2007-08-29:

It's official: the fund is bankrupt. From the Reuters article:

In court papers, Basis Yield said it had in June begun to suffer a "significant devaluation" in its asset portfolio, following market volatility related to U.S. subprime lending defaults.

It said the devaluation led to margin calls, which it was unable to meet, and the issuance of several default notices by counterparties seeking to close out trades or seize assets.

Update 2007-08-15:

Bloomberg reported today that Basis Capital has told investors that one of their funds may have losses that exceed 80%. The article notes:

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.

Original 2007-07-19:

Basis Capital Fund Management suffered substantial losses due to the fall-out in CDOs. As a result, the fund suspended redemptions. Bloomberg reports:

In a letter sent to investors July 6, Basis Capital said its investments in collateralized debt obligations, or CDOs, had been tarnished by "guilt by association."" Less than a week later, the Sydney-based hedge fund, which had assets of $1 billion in May, said its two funds lost 9 percent and 14 percent last month. Withdrawals from the funds have been frozen and some margin calls have been missed, research firm Zenith Investment Partners Ltd. said in an e-mailed note today.

Basis Capital is the first Australian hedge fund to report losses from the shakeout in the U.S. subprime market. Most of the pain may be borne by individuals, who are allowed to invest in Australian hedge funds, unlike in the U.S. where the largely unregulated pools of capital are off limits to retail investors.

"There will be a flow on in the marketplace surrounding the problems experienced by Basis and its investors, but it's too early to say exactly how that will pan out," said Bill Entwistle, chief investment officer at Absolute Capital in Sydney, who invests in the rated portions of CDOs.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.