It’s quiet out there. Way too quiet
A prediction two weeks ago that the crowds watching for multiple among strategy hedge fund fiascos would probably leave disappointed is, so far, on the on the money. NakedShorts—and numerous much-better-informed-than-he sources to which he has spoken in recent days—believe that it’s too quiet, way too quiet, out there.
It is possible that more bodies will begin floating to the surface in the next 48 hours or so, as funds with Jun. 30 redemption checks due on the wires by tomorrow issue sorry-about-thats. But counting against that possibility is a timing issue: the fact that pricing models had stumbled, again, did not emerge until early June, well after the the typical 45-day notice period for Jun. 30 redemptions expired.
No evidence has emerged to suggest that the market for complex leveraged mostly-mortgage-backed derivatives has loosened at all in the last two weeks. Indeed, the decision by leading investment banks to postpone junk issues for several major buyouts—Chrysler’s extraction from Daimler Benz, and the Alliance-Boots transaction in the UK are just kids-on-the-milk-carton for that phenomenon—suggests something of a rolling buyer’s strike in a market that, as late as mid-May, was buying any old yield at any old price, no questions asked.
If the mortgage market clears this week’s low stile, the next pressure point is around Aug. 15, when most redemption notices for Sep. 30 redemptions will be due. And unless something extraordinary happens—say, a Chinese bid for Fannie Mae at a 30 percent premium over Friday’s close, for example—the redemption notices, especially from hot-money investors—Hello Geneva!—will be flying out of the fax machines.
After the jump, ketchup on some recent material, mostly (but not all) adverse, circumstances:
Saturday,July 28 2007
It took 750 words of margin call mayhem, in a roughly 800-word piece by The New York Times’ Jenny Anderson, to get to what is, in today’s context, the man-bites-dog bit:
MKP Capital, an investment company that has hedge funds focused on mortgage-backed and asset-backed securities, bet the market would fall apart and its investors have profited handsomely. MKP Credit, one fund, is up 7.3 percent for July and 22.3 percent for the year, while a distressed fund, MKP Credit II, is up 5.5 percent for July and 13.1 percent for the year, according to a person briefed on the fund’s results.
$3 Billion Hedge Fund Is Down 10% for Year
by Jenny Anderson
The New York Times Jul. 28 2007
Meanwhile, The Wall Street Journal—without once using the word ‘vulture’—reports that the guys with dry powder are on the march. From this perch, a little early in the process but, hey, it’s not my money. And, historically, some of the biggest profits in hedge fund history have been made by those with cash—or at least untapped, and irrevocable, credit lines—when all about are hitting bids. If any.
Hedge Funds Pounce on Debt Amid Turmoil [$$]
by Gregory Zuckerman, Henny Sender And Alistair Macdonald
The Wall Street Journal Jul. 28 2007
For those playing at home, the WSJ has, on its public site, a handy-dandy scorecard.
How Credit-Market Tremors Have Affected Junk Bonds, LBOs and Hedge Funds
Friday, July 27 2007
Flash git John Devaney, the owner—so far—of Key Biscayne-based United Capital Markets and its Horizon hedge funds, is asking $23.5 million for Positive Carry, his 142-foot gin palace, and another $16.5 million for his second home in Aspen, Colo. If they’re marked the same way evidence suggests he marked his bonds, the bid is going to be a severe disappointment.
Having credit lines pulled is one thing. Having—and I’ve no evidence or information that this is the case here, it’s just an observation—personal guarantees whistled up is the real bitch.
How Many Yachts Can John Devaney Water-Ski Behind?
by Mark DeCambre
TheStreet.com Jul. 27 2007
The Harvard Old Boys Club ran into more grief Friday; fine for Jack Meyer’s $6 billion Convexity Capital Mgt LP to finish 2006, his debut year, flat. Not so fine for his former Harvard Management Company colleague Jeffrey Larson—who took a near-two year start on Meyer—to drop 10 percent of his $3 billion fund in the last two months. It has met its margin calls to date and survival does not appear to be an issue: Larson’s investors’ have their tables stowed and their seat-belts low and tight until Dec. 2008.
[The story was first reported on the WSJ’s website around 11:40 am EDT Friday; the original piece became the ‘Hedge Funds Pounce on Debt’ article, linked above.]
Thursday,July 26 2007
Wednesday,July 25 2007
Another Australian stepped in a wombat dropping. Sydney-based Absolute Capital announced the suspension of redemptions in its $A200 million Absolute Capital Yield Strategies Fund, and its Kiwi-denominated share class, late Tuesday, US time. It told investors that redemption requests received after Jul. 22 would not be processed until Oct. 25; the fund was reported flat in June, and expects a 4-6 percent loss in July.
Unlike its peer Basis Capital, Absolute—50 percent owned by ABN Amro’s Australian arm— managed to announce its losses without whitewashing its website of virtually all traces of its former glories...including a Jul. 18 announcement that its funds were “built to last through credit cycles.”
Absolute Capital believe a temporary closure of the funds is the best defensive measure to protect the longer term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds’ investments.
Absolute Capital temporarily closes its Yield Strategies Funds to protect investors
Yield Strategies Funds - Questions and answers
Absolute Capital
Jul. 25 2007
Absolute Capital Yield Strategies Funds - Built to last through credit cycles
Jul. 18 2007
Tuesday, July 24 2007
Another day in downtown Baghdad
Monday, July 23 2007
The week got off to a rip-snorting start with Bloomberg quoting Grumpy’s London-based analyst Henry Tabe offering assurances that subprime structured, and hybrid structured, investment vehicle ratings will remain stable, partly because of the diversity of their portfolios.
One question that reporter Jody Shenn forgot to ask: Why, exactly, should we believe you this time? After all, the recent record is about as suspect as a bond-pricing model, as innumerable plaintiffs’ attorneys will doubtless soon be explaining to your gullible and hopelessly conflicted organization, and a couple of others that spring to mind, in the reasonably forseeable.
Structured Vehicles Are Subprime `Oasis of Calm,’ Moody’s Says
By Jody Shenn
Bloomberg Jul. 23 2007
Earlier on NakedShorts:
Jul. 16 2007: Concussions...now the repercussions
All DisCredited articles: DisCredited
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