Bloomberg- Ellington Management Group LLC, the Old Greenwich, Connecticut-based hedge-fund firm that focuses on mortgage securities, suspended client redemptions from two funds because it’s too hard to value their assets.
Investors won’t be able to withdraw money from New Ellington Credit Overseas Ltd. and New Ellington Credit Partners LP, according to a copy of the letter posted on the Internet blog nakedshorts.com. There’s been little or no trading in some low-rated or unrated securities backed by subprime home loans, making valuations difficult, the Sept. 30 letter said.
Setting asset values wouldn’t be “simultaneously fair both to investors redeeming from these funds and to investors remaining in these funds,” Chief Executive Officer Michael Vranos and Vice Chairman Richard Brounstein wrote.
Funds run by New York-based Bear Stearns Cos. and Basis Capital Fund Management Ltd. of Sydney collapsed because of losses on bonds linked to subprime mortgages. Subprime securities with the lowest investment-grade rating may be worth an average of 32 cents on the dollar, according to a report last month by Bear Stearns.
Ellington’s temporary freeze isn’t a response to redemption requests, which have been “unexceptional,” or margin calls by creditors, which have “generally been in line with our expectations and have been easily handled by our cash positions,” the letter said.
