Another Aussie hedge fund in trouble

A timely reminder that Australia is not immune from the financial excesses that receive so much attention in the US. Last week Australian Hedge Fund manager Basis Capital conceded that they have exposure to the US sub-prime market.

The company's Basis Yield fund fell 14% in June, and said it was likely to stop withdrawals to prevent forced sales of assets. The Financial Times reported that the group is currently in talks with creditors after banks seized and began to sell some of its investments.

Creditors said the $1 billion manager missed margin calls on Monday for its Basis Yield Fund, and has appointed accountants Grant Thornton as restructuring advisors.


Absolute Capital Hedge Fund Suspends Withdrawals

Today, another Australian Hedge Fund Absolute Capital, that invests in CDO's suspended withdrawals from two of its funds after forecasting losses due to a fallout in the subprime market. The company's Chief Investment Officer Bill Entwistle commented that:

"Because of the contagion from subprime, all of the credit sectors are re-pricing,'' Sydney-based Entwistle said." "There are lots of sellers and no buyers, the market has to settle down before we can get some clarity."

Funny stuff, well Bill I'd say the market has has gotten a dose of clarity for the first time in a long while. Who would actually want to buy this crap? I also liked the following quote:

Absolute Capital said it won't process any requests for withdrawals until Oct. 25, estimating it may take three months for enough buyers to return to the CDO market.

It may take three months, it may take only two or they may not return at all. This thing is going to get a lot worse before it gets better and even when buyers do return it will be at fire-sale prices.

A more balanced opinion was that expressed by Kim Ivey, chairman of the Australian Alternative Investment Management Association, which represents 80 of the nation's hedge fund managers. Commenting on the exposure of local hedge funds to the subprime market he said:

"I expect that it will be contained to just a handful.'' "More of a concern is what will happen once the fallout moves from the subprime sector to more senior debt, when many more managers have exposure.''

Absolutely Kim and as we have seen this week firstly from Countrywide and yesterday from Citigroup Inc. it is definitely spreading.