Posted on 07/05/2007 5:19:36 PM PDT by bruinbirdman
Heavy redemptions from investors concerned about their holdings of subprime mortgage securities claimed Braddock Financial Corp.'s Galena Street Fund as the latest hedge fund victim.
Braddock, a top-performing bond hedge fund manager, on Thursday said it will liquidate the $300 million fund after redemptions slashed its assets by a quarter since 2006, Chief Executive Officer Harvey Allon said in an interview. The fund's closure comes just days after United Capital Markets Holdings Inc. suspended redemptions on its funds exposed to the risky subprime mortgages.
Reports that losses in subprime mortgages were wreaking havoc with hedge funds, especially last month, "just made investors nervous about being invested in the subprime market at all," Allon said.
Investors stepped up redemptions after the Galena fund posted a loss of about 3 percent in the first quarter, following gains of 7 percent in 2006, he said. The fund had bets that benefited on both gains and losses in the subprime mortgage market, he said.
Given the performance, "people voted with their redemption requests," he said.
Concerns about losses in subprime mortgage investments were amplified last month after Wall Street investment bank Bear Stearns Cos. (BSC.N: Quote, Profile , Research) bailed out a hedge fund run by its asset management unit after the fund's subprime bets turned sour. Many sales of collateralized debt obligation bonds that include mortgage assets from the Bear funds were canceled at prices offered, fueling speculation that losses were deeper than expected.
The market for mortgage-backed securities, including subprime, has nearly doubled since 2000 to $7.2 trillion as investors earmarked more money for the bonds during the U.S. housing boom. Wall Street dealers that pooled mortgages into securities have been credited with helping boost homeownership, but also with encouraging excesses in lending that are now resulting in soaring mortgage delinquencies and foreclosures.
Delinquencies on subprime loans in bonds rose 10 percent last month to 12 percent, according to Credit Suisse.
Denver-based Braddock, established in 1994 by Fannie Mae (FNM.N: Quote, Profile , Research) adviser and former Nomura Securities mortgage trading chief Allon, specializes in the riskier portions of mortgage and other asset-backed securities, according to its Web site. It manages about $2 billion.
Galena investors will receive 20 percent of their balances by early next week, and then probably "more frequently than quarterly," he said.
Braddock's Galena and Mortgage Opportunity Fund VI were the top performers of hedge funds that specialized in bonds for the three years through last fall, a Braddock spokesman confirmed, referencing data from Hedge Fund Research.
The Mortgage Opportunity Fund VI "is doing very well" with returns of about 5 percent in 2007 and nearly 20 percent in 2006, Allon said
Except for Blackstone who saw the handwriting on the wall and put a tiny bit up for public auction, thereby establishing a NAV. It has gone down since becoming public.
If they are forced to sell their dicey CDOs, a market price for subprime tranches will be set.
It’s probably not a price the other hedge funds will want to hear.
Somehow I bet the managers made millions.
I think these managers don't own much of their own companies. The profits of which they claim 20%+ before distribution are based on values that are a computerized scenario with no market.
Chickens coming home to roost in a coop of cards.
yitbos
As more of these CDO’s and CDO-squareds are liquidated, I think more funds will start to have problems.
Liquidity is the problem. A couple of hedge funds today had to halt redemptions. There were no "bids" for "asked". There were no NAVs.
yitbos
It's almost like an old fashioned bank panic, except these funds can apparently pay back their customers at their own pace.
It doesn't matter if they can benefit both ways. Having subprime is like having the cooties. You can't go to a party anymore and brag about owning anything to do with subprime.
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