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ING Diversified Yield, Regular Income, etc. - CDOs, etc.

2008-12-10

Count of distinct funds: 4
Capital base: NZ$521M
Loss: ~50%

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

The funds described in our initial writeup, Diversified Yield and Regular Income, will now be wound up, along with two other funds:

ING said it had borrowed NZ$100 million to part pay out investors, while the funds' assets are sold.

"The cash option that ING will be proposing is aimed at helping investors as we sell assets over an extended timeframe," ING New Zealand's chief executive, Helen Troup, said in a statement.

It will now recommend to the funds' trustee and the near 8,000 investors affected that they be wound up.

ING also said it would wind up two other funds, the Credit Opportunities and Enhanced Yield, worth NZ$35 million with 710 investors.

Demand for the two funds had fallen and the downturn had resulted in illiquidity and difficulty in selling assets which could not be easily priced.

When we first wrote about Diversified Yield and Regular Income back in March, the losses were said to be in the range of 25-30%. Now, the four funds (which still seem to consist most of the first two) are valued at around 50%. And the assets are still being sold...

Ailing writeup, March 12, 2008:

ING has been forced to suspend withdrawals from two finds after a minority of nervous investors headed for the exits. The Bloomberg article cited above has more:

Withdrawals from the ING Diversified Yield Fund and the ING Regular Income Fund were halted to protect investors, Marc Lieberman, chief executive officer of ING (NZ) in Auckland, said in an e-mailed statement. About NZ$520 million ($417 million) was invested in the two funds at the end of February.

Since August, rising defaults on U.S. subprime mortgages triggered a global sell-off of CDOs, which are fixed-income securities backed by the loans. The value of the Regular Income Fund fell 25 percent in the year ended Feb. 29 while the Diversified Yield Fund dropped 22 percent, according to the company's Web site.

ING claims "most" of the fund contains higher-quality assets, with only 10% in subprime and 6% in CDOs. Displaying a common paradox, ING is planning on selling some of the higher-quality holdings to meet withdrawal request, which of course will push the prices for those assets down, explaining much of the market action we are seeing. ING like does not want to liquidate the CDOs or subprime because it is hoping the values will come backā€”or perhaps the quotes on those assets are no so low, they would not be enough to meet investor withdrawals.

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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.