7 replies to this topic

[Rogerdodger]

Frankfurt Trust Halts Fund Redemptions Amid Subprime Concern

Aug. 6 (Bloomberg) -- Frankfurt Trust, the mutual fund manager of Germany's BHF-Bank, stopped withdrawals from a fund after clients removed 20 percent of their money since the end of July amid concern about the U.S. subprime loan debacle.

The FT ABS-Plus fund, which includes residential mortgage- backed securities and collateralized debt obligations, halted redemptions on Aug. 3, the Frankfurt-based company said today. The 160 million-euro ($221 million) fund has a ``small exposure'' to subprime investments, spokesman Holger Ullrich said.

Defaults on U.S. housing loans to borrowers with patchy credit histories have reached a 10-year high, driving down the value of bonds backed by mortgages. Union Investment Asset Management Holding AG, Germany's third-largest mutual fund manager, said on Aug. 3 it halted redemptions from a fund holding subprime mortgages after clients withdrew about 10 percent of the assets in the past month.

``The situation for the asset-backed securities and CDOs market has gotten much worse in the last few days because of the U.S. real estate crisis,'' making it difficult to secure fair prices, the company said in a statement on its Web site.

Fulfilling rising redemption requests would have forced Frankfurt Trust to sell the securities far below their ``fair'' value, the company said. It is closing the fund to withdrawals and new investments for an unforeseen period ``in the interest of investors.'' Clients had withdrawn about 40 million euros since the end of last month, Ullrich said.

Sal. Oppenheim Jr. & Cie KgaA, Germany's largest independent bank for the wealthy, acquired BHF-Bank from ING Groep NV, the biggest Dutch financial-services company, for 600 million euros in December 2004.

[Rogerdodger]

Subprime aftershocks on WallStreet Journal Online video:

[vitaminm]

http://www.ft.com/indepth/subprime

[humble1]

sad: "in the interest of investors". so the money is only there if you don't need/want it! it should be illegal: they SHOULD have to place a real market value on their assets and allow redemptions.

[ogm]

sad: "in the interest of investors". so the money is only there if you don't need/want it!

it should be illegal: they SHOULD have to place a real market value on their assets and allow redemptions.

Well, its true and not....

If they fund is halting only because they are getting hit by redemptions, then they are maybe trying to protect those who aren't withdrawing money. So they weren't pressured to liquidate funds assets in unfavorable market conditions.

The smart thing to do is to have redemption windows. Where you submit request to the fund in advance of how much you want to extract and during certain windows several times a year they cash you out. This way the fund management isn't pressured to liquidate positions on demand and can plan in advance. Especcialy if they are heavily leveraged.

Edited by ogm, 07 August 2007 - 06:26 AM.

[OEXCHAOS]

In an illiquid market, the fund manager has a duty to the remaining as well as exiting shareholders to preserve value. Disorderly redemptions destroy value. This is why they allow for this sort of thing in prospectuses. And, after all, the whole premise behind a fund is to let the expert manage your money for you. In Europe it's even more so...much more paternalistic, as I'm sure many here can attest. Personally, I think it's prudent and perhaps even good, but then, again, I don't give my money to funds that have much chance of doing such a thing. What those shareholders better hope is that the fund managers don't give them the securities in lieu of cash. Mark

[humble1]

it allows the mangers to hide the true value of the fund and, meanhwile, charge management fees on the bloated value PLUS fees on the money that is being held against wishes. as a practical matter, it will CAUSE PANIC not reduce anxiety. what sensible person would now wait around to withdraw money fund assets until they are needed and maybe get stuck. i don't think i will do well here as an advocate for the investor, lol.

Edited by humble1, 07 August 2007 - 08:03 AM.

[OEXCHAOS]

Heck, I'm an advocate for the investor. I just think that your attitude is both wrong headed and ignores the reality of the agreement between advisor and client with regard to these funds. In general, I find that the way European investors (small ones, that is) are treated is onerous, paternalistic, and unfairly, to say the least. BUT, in this case, what you have is a situation in which UNECONOMIC trading decisions are being made. Forced liquidations in an illiquid market cause mis-pricings People like me wait for such times in order to get a good deal. The fund managers know that, and are trying to not give it to folks like me. Now, they may end up being wrong on the call, and certainly, they may end up bringing about the closing of their fund, but I believe that they think that they are doing the right thing in their fiduciary capacity. I'm inclined to think that they are, too. It's just that rather than dying and letting the cards fall where they may, they're choosing an orderly and careful death that hopefully minimizes damage. In any case, it's not criminal. In fact, it might even be required by prospectus (I hadn't thought of that). Mark