Another hedge fund closes its doors in Sydney to investors, albeit temporarily, as it struggles to right the ship after being rocked by the growing credit crunch and the subprime mortgage mess in the US.
Absolute Capital, half-owned by ABN Amro, the big Dutch bank, revealed the decision in a statement posted on its website yesterday. The other 50% is owned by a group of white men and no women: no names were apparent on the web page so it’s a case of “we’re a hedge fund, trust us.”
Absolute Capital has frozen redemptions from its $210 million Yield Strategies fund, blaming debt markets that have “ceased to operate normally”. This was after estimates the fund would fall in value by up to 6% in July following widespread re-pricing of sub-investment grade debt.
Absolute said the three-month freeze on investor withdrawals would end on October 25 and was made despite it saying it has less than 5% of the Yield Strategies fund exposed to the sub-prime housing market in the US, and has limited borrowings of about 5% of its total portfolio.
It has investors from fund management administration platforms offered by Westpac subsidiary BT and Macquarie Bank. Some Macquarie Bank funds have dropped 9% in the past month or so.
The announcement follows last week’s news from Basis Capital’s $320 million fund, Basis Yield, that investors could receive less than 50c in the dollar. Basis Capital has appointed US private equity group, Blackstone, to negotiate with banks to try and halt the sell-off of assets in its fund
Blackstone advised the two Bear Stearns hedge funds that invested in sub-prime mortgages that went belly-up this month at a probable cost of $2 billion. Basis’ two funds have around $650 million in value — or had. Super funds and other investors have been found to have had investments in the basis fund under the heading of ‘Fixed Interest” (The Combined Fund for private school teachers in Victoria). Nothing could be further from reality
This news broke while debt markets were reeling from news that the $20 billion financing of the buyouts of Chrysler in the US and the Alliance Boots chemists chain in Britain had failed because no-one wanted to buy the bonds on offer. So the investment banks involved in the issue bought the bonds from themselves, effectively completing the deals for Cerberus (Chrysler) and KKR (Boots) and keeping the private buyout industry and credit market stable.
If these had failed completely and the likes of JPMorgan and Deutsche Bank not bought the bonds themselves, confidence in the private buyout and structured credit markets would have been badly hit, forcing a sell-off in the market and a rush to put money into US Government bonds.
As it was, US government bond yield eased again as more money poured into them from nervy investors.
There could be $US40 to $US50 billion in bonds now held by investment banks which could not be sold but they were bought to complete the deals.
Around 35 deals have either been pulled, postponed or repriced in the past five weeks around the world and US estimates say there are another $US300 million in buyout deals to finance, including the huge $US32 billion plus buyout of power utility TXU by KKR and partners which is facing opposition from shareholders and may fail.
And, in the US housing market, another slide in sales of pre-owned houses to a five-year low, even though there was a slight rise in the average price.
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