Bids Wanted at the Bear

Tradition dictates that hedge funds need to to build track records before they can attract significant assets.

Times have changed.

Bear Stearns Asset Management’s High-Grade Structured Credit Strategies Enhanced Leverage Fund is now infamous. Partially for its name, which is very long. And for its year-to-date losses, which are very large. You might not have heard of this particular vehicle, which is understandable given it is only 10 months old.

It is down 23% year-to-date through April, if you counting. Of course, that is subject to revision. The fund’s April performance figures had to be revised after Bear realized the 6.5% decline that they had fessed up to for April was actually closer to 20%.

The situation is so bleak that Bear Stearns’ asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that’s got some hopping mad.

“At the end of the day, I’d like someone to be honest with me about what’s going on,” says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages, or home loans to consumers with shaky credit histories. An investor in Europe, who didn’t want to be identified, says he’s been trying to get his money out of the hedge fund since February. Business Week
Sub-prime bodies are finally floating to the surface. UBS shuttered its Dillon Read Capital Management hedge fund in May after being caught in the maelstrom. And now this.

Of course, the upcoming Everquest IPO Bear had hoped to pawn off on the public will probably need to revise boiler plate in the prospectus. Not an easy task given that it was twenty one mind-numbing pages long.

The losses won’t likely dent Bear, although they probably have some skin in the game. But investors in the fund might want to lick their wounds and try to make up the losses elsewhere.

Because the Bear is trying to sell billions of dollars worth of mortgage-backed securities.

Bids wanted. Beer needed.

Bear Stearns’ Subprime Bath
Business Week

Bear Fund Is Facing Mortgage Losses
Wall Street Journal
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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