Funds News

Second Australia hedge fund suspends withdrawals

 SYDNEY, July 26 (Reuters) - A second Australian hedge fund
has become caught up in the subprime mortgage fallout, with
Absolute Capital telling investors it has suspended withdrawals
from two funds until October due to a lack of liquidity in
structured credit markets.
 Sydney-based Absolute Capital, which specialises in
structured credit assets and is half-owned by ABN AMRO
Australia AAH.AS, said the two funds are Absolute Capital
Yield Strategies Fund and the Absolute Capital Strategies Fund
NZD, and are worth A$200 million ($177 million) combined.
 The suspension follows a decision by Australian hedge fund
Basis Capital to suspend redemptions on two of its funds and
appoint U.S.-based Blackstone Group BX.N as financial adviser
to help prevent a fire sale of its assets.
 "Absolute Capital believes a temporary closure of the funds
is the best defensive measure to protect the longer term
interests of our investors given the current illiquid nature of
the funds' investments," Absolute Capital Group Managing
Director Deon Joubert said in a note available on the firm's
 The two funds invest in structured credit assets including
collateralised debt obligations (CDOs). But the note said they
had less than 5.0 percent of assets invested in U.S. subprime
and did not invest in higher-risk equity tranches of the CDO
 The funds were likely to post losses of 4 to 6 percent in
July, it said.
 The U.S. subprime mortgage crisis emerged after lenders
reduced lending standards for the riskiest home loans, which
were securitised and onsold. A crash in the U.S. housing market
has since led to a rise in mortgage defaults and a wave of
credit downgrades.
 Basis Capital, which securitised "non-conforming" assets
such as car loans and personal loans, warned earlier this month
that ratings downgrades on U.S. subprime debt had led to falls
in the value of securities. It then suspended withdrawals.
 However, contrary to Basis Capital, Absolute said it did
not have margin calls in place.
 "As such there is no pending trigger of any facility
conditions that would require immediate repayment," Absolute's
note said.