The Australian- THE full extent of problems in two of Australian hedge fund operator Basis Capital’s funds caused by investment in Collateralised Debt Obligations (CEDs) is now emerging, with the news that the funds fell in value by an average of more than 10 per cent in June alone.
Sydney-based Basis Capital, which reportedly manages over $1 billion in credit products out of Australia, was forced to halt redemptions from the two funds on Monday.
The organisation, founded by former County employees Steven Howell and Stuart Fowler, revealed that its Basis Yield Fund lost 13.7 per cent in value in the month. Basis Aust-Rim Diversified Fund fell by 9.2 per cent.
The funds had exposure to CDOs, of which a small number were involved in sub-prime mortgages. In the US some such mortgages are nicknamed “Ninja loans” because borrowers might have no income.
The funds had previously been regarded as stand-out performers. According to research house Morningstar, at May 31, 2007, the Basis Aust-Rim Diversified Fund (established in August 2000) had returned 10.63 per cent over 12 months, 12.98 per cent a year for three years and 10.83 per cent for five years.
The Basis Yield Fund (established in December 2003) had returned 13.86 per cent over 12 months and 14.82 per cent a year over three years. $1000 invested in the Basis Yield Fund on January 1, 2004, had at May 31, 2007, become $15,900. The same amount invested in the Basis Aust-Rim Diversified Fund had become $14,665.
