Reuters UK – The bankruptcy filing of Lehman Brothers is another blow for the hedge fund industry, but at least the damage is limited from here for funds exposed the U.S. investment bank.

Even legendary fund manager George Soros, who runs around $18 billion (10 billion pounds) in assets, is likely to have been affected after raising his stake in the investment bank to 9.5 million shares in the second quarter.

A spokesman for Soros Fund Management declined to comment on the composition of their portfolio.

British activist hedge fund Algebris is also likely to have been hit by the fall in the share price of Lehman, once the fourth-largest U.S. investment bank.

The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman said, declining to give further details.

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New York (HedgeCo.Net) – Despite valiant efforts to find investors and stay afloat the credit crisis, Lehman Brothers Holdings Inc. is now at the center of the biggest bankruptcy filing in history.

The fourth-largest investment bank filed for Chapter 11 protection in a Manhattan court today, after write downs stemming from the subprime mortgage fall-out that it helped create proved to be too much to take.

Lehman, who was the largest underwriter of mortgage-backed securities, listed over $613 billion in debt, including over $157 billion owed to unsecured creditors and over $155 billion owed to bondholders.

"The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,” said Chief Financial Officer Ian Lowitt in the filing.

Shares of Lehman were trading as low as 29 cents this morning; a fitting finale after losing 94 percent of its market value this year. Treasury Secretary Henry Paulson and the Federal Reserve had been trying to come up with a deal that would keep Lehman afloat. Paulson made it clear that he did not want to use taxpayer money to bail out Lehman.

While London-based Barclays looked to be interested in investing in Lehman, they pulled out yesterday amidst concerns over the lack of guarantees from the U.S. government to protect against losses on assets. Bank of America then followed suit, withdrawing from talks with Lehman only to acquire Merrill Lynch shortly thereafter.

Lehman was planning on selling a majority stake in their asset-management unit for around $4 billion.  While talks are still in the works, no conclusion has been reached. Speculations that more losses were to come coupled with its liquidity crunch have prevented any sale from taking place as of yet and ultimately led to the demise of the bank.

Lehman now joins Bear Stearns and Merrill Lynch in the group of banks that were "too big to fail,” that couldn’t weather the credit crunch.

Lehman’s assets are listed at $639 billion. They have about 25,000 employees worldwide.

Julie Scuderi
Senior Editor for HedgeCo.Net
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West Palm Beach (HedgeCo.net) – In an effort to head off a forced asset sale, Windmill Management’s SageCrest Finance and SageCrest II filed for Chapter 11 bankruptcy after its assets fell sharply.

The hedge fund filed at U.S. Bankruptcy Court in Bridgeport, Conn. In a letter to investors, The fund said that the bankruptcy process would give SageCrest the time necessary to conduct an orderly liquidation of their assets to maximise the return to investors.

The fund described its investment strategy as making short-term loans to small- and mid-sized firms that cannot secure them from banks and specialty lenders. "Our position in a market where lending opportunities continue to outpace sources of capital provides an ideal point of departure for growth." The SageCrest website says, "Our investments target asset-rich and undervalued situations overlooked by, and with limited access to, the mainstream capital markets."

In its bankruptcy filing, SageCrest claimed fewer than 49 creditors and debts of between $1 million and $10 million. The hedge fund, which once boasted assets of as much as $650 million, said it now had between $50 million and $100 million.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

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