Bear Stearns taps managers to save hedge fund

By Dan Wilchins and Walden Siew

NEW YORK (Reuters) - Bear Stearns Asset Management CEO Richard Marin is taking a stronger role in managing its two troubled hedge funds and tapped mortgage unit head Thomas Marano to save one of the funds, two sources familiar with the decision said.

Marin appointed Marano last week to help with the funds managed by Ralph R. Cioffi, who retains his current role as portfolio manager for both funds, said one source.

Company spokesman Russell Sherman declined to comment.

Bear Stearns Cos. Inc. BSC.N said on Tuesday it does not plan to bail out the High-Grade Structured Credit Strategies Enhanced Leverage Fund, the second of two struggling hedge funds.

Instead it will provide $1.6 billion of financing to save its High-Grade Structured Credit Strategies Fund. Days earlier the bank had said it would provide up to $3.2 billion in financing.

Marano is a longtime Bear Stearns banker who joined the firm in the 1980s and rose through the ranks to become head of the company's mortgage and asset-backed securities business.

MARKETS

Stocks fell and Treasuries edged higher late on Tuesday on concern that problems stemming from defaults by less-creditworthy mortgage holders could reverberate through the markets.

Bill Gross, manager of the largest bond fund in the world, PIMCO, said the subprime crisis was not isolated and would eventually take a toll on the U.S. economy.

But a U.S. lawmaker and the head of the Securities and Exchange Commission did not expect a systemic meltdown from Bear's woes.

Bear said in a statement the financing helped stabilize the market for the securities the funds traded in -- collateralized debt obligations, which are essentially portfolios of debt.

CDOs trade infrequently and many investors feared that, if creditors sold CDOs seized from Bear, the market as a whole for those securities would decline. In the worst-case scenario, corporate borrowing costs could increase, leveraged buyout activity could decrease and the stock market could fall.

Both Bear funds racked up big losses. The High-Grade fund was down about 5 percent in the first four months of the year, while the Enhanced Leverage fund was down about 23 percent during that period.

Losses, combined with the funds restating their results, spurred margin calls and investor redemptions.

Lenders have about $1.2 billion of exposure to the Enhanced Leverage fund.