Basso Capital says facing losses in most strategies

By Dane Hamilton

NEW YORK, May 2 (Reuters) - Basso Capital Management has lost money in nearly all strategies of the $2.57 billion hedge fund group in the year through March, the company said, citing a common industry challenge.

Basso, which trades equity, fixed income and convertible arbitrage strategies, fared worst in credit strategies mostly involving non-investment grade bonds, according to a May 1 letter the firm sent to investors.

Basso's Credit Opportunities Fund lost 2.37 percent in March, bringing its losses to 14 percent in the year through March 31, the letter said.

Other strategies fared better. Convertible arbitrage strategies in the Basso Partners and Basso Investors funds lost 2.5 percent in March, putting both funds down 2.8 percent for the year through March, according to the letter obtained by Reuters.

And its two Basso Multi-Strategy funds lost nearly 1.1 percent in March, leaving both down 4.75 percent for the year through March, the letter said.

Stamford, Connecticut-based Basso, which is headed by CEO Howard Fischer, declined to comment.

The size of each fund was not disclosed, but the firm has total assets of $2.57 billion, according to data filed with the U.S. Securities and Exchange Commission.

Hedge funds in nearly all strategies lost money this year on average, hammered by falling equity and bond markets in the wake of a credit crunch starting in mid-2007.

In the year through March, hedge funds overall were down 3.06 percent, according to industry tracker Hedge Fund Research, which compiles hedge fund indices.

Convertible arbitrage strategies, which involve trading corporate convertible bonds against the underlying equity in the company, lost 6.88 percent in the year through March, HFR said. Fixed income hedge funds lost 4.8 percent in that period, it added.

PAINFUL PICTURE

"Investors and managers have failed to live up to the challenges we are facing in the current market environment," Fischer said in the letter, painting a painful picture for hedge funds generally.

"It is evident to us that many funds are forcibly liquidating part or substantially all of their portfolios."

Fischer said many hedge funds are facing "material" investor redemptions and sharp reductions in broker-provided leverage, although Basso has not experienced that "as of this writing."

"The deep financial weakness of the dealer community ... has resulted in the disappearance of bank dealing desks and prop desks from the market place," Fischer told his investors.

In particular, he said, many hedge funds are selling convertible bonds, since they "a liquidity vehicle of choice for multi-strategy funds suffering material losses."

Still, Fischer said a downdraft in convertible bond prices due to selling pressure "offers as good, if not better, opportunities" than previous years. As a result, he said Basso is opening its convertibles fund to new investment.

(Reporting by Dane Hamilton, editing by Richard Chang) (Reuters email: dane.hamilton@thomsonreuters.com. 646 223 6161)