Firm Halts Withdrawals As Subprime Woes Grow
#1
Posted 04 July 2007 - 07:55 AM
Earlier this year, during an American Securitization Forum industry conference in Las Vegas, John Devaney, founder and chief executive of United Capital Markets, was among the most passionate of panelists who highlighted their key roles as willing traders of a market whose losses were mounting.
"Hedge funds have provided a very positive impact on reducing price volatility over the last two to three years," said Devaney, who billed himself as the Ace of Spades on a deck of playing cards he distributed to ASF attendees.
Prior to that, Devaney said he capitalized on a difficult period in the ABS market, when secondary liquidity and analysis was needed, to establish his firm. United Capital became a source of much-needed liquidity in the riskier portion of the ABS market.
United Capital Asset Management said on Tuesday it was forced to temporarily suspend redemptions for its Horizon Funds group due to volatility in the structured finance market. The firm said it had received an unusually high number of redemption requests in June from investors, including one large one from an investor who had put up about 25 percent of the funds' money. However, it planned to continue operations.
"We wish to emphasize that UCAM and Horizon are not liquidating and intend to continue in operation," the firm said in a statement. "We have spoken to our lenders and they are supporting our efforts," it said.
The funds, including Horizon Fund L.P., Horizon ABS Fund L.P., Horizon ABX Fund Ltd and Horizon ABS Master Fund Ltd., hold most of the firm's assets under management, which stood at about $619 million as of March.
"I wouldn't be surprised if you see more investors trying to take money out and being restricted by the funds that they're invested in," said Jim Palmieri, portfolio manager at GE Asset Management. "These funds are invested in collateral that doesn't have quite the liquidity of the rest of the fixed income market."
Worries have heightened in recent weeks about a potential spillover to other hedge funds who hold similar risky assets.
"You have a market that evidently was extremely nervous over the sale of Bear Stearns hedge fund collateral because of the mark-to-market," said Darcy Morrison, analyst at Evergreen Investments in Charlotte, North Carolina. "Now you have holders who are not willing to take a chance due to the lack of liquidity for their assets. It's almost like who's going to go first and take a hit," Morrison said.
The ABX subprime mortgage index has posted a series of record lows after two Bear Stearns Cos.-managed <BSC.N> hedge funds hit rock bottom by making bad bets on risky mortgages. Rising delinquencies on loans made to borrowers with poor credit, which are pooled into securities like ABS or collateralized debt obligations, also heightened concerns.
United Capital's Horizon hedge fund lost money when closing down its position in the ABX. "We view the synthetic markets as highly volatile and, at this time, have stopped trading them entirely," it said.
As of Tuesday, the firm said it had in excess of $145 million of cash as a cushion against current lending requirements and expects to resume processing redemptions in the near term. Through combined trading losses and market repricing, the firm expects to end the year down.
United Capital said it reduced many cash bond and synthetic positions in June and sold a large amount of cash securities into the market without issuing bid lists or conducting auctions.
"The secondary market for some of this stuff right now is just terrible. If you're going to provide money for everybody who wants refunds then that means you're going to have to sell into a terrible market," said one bond investor.
In May, Swiss bank UBS <UBSN.VX> reported lower first quarter net profits and the closure of its Dillon Read hedge fund arm, which was hit by losses in the U.S. subprime mortgage market. Dillon Read Capital Management ran up losses of 150 million Swiss francs ($124 million) in the first quarter.
"Until two weeks ago, the market was mostly focused on trying to discern the impact of the declining housing market and deteriorating collateral performance on the 'fair value' of subprime-related assets," said Richard Parkus, Deutsche Bank analyst, in a recent report.
"However, with the events surrounding the problems at the two BSAM (Bear Stearns Asset Management) structured credit hedge funds, the market is now focused on the risk of a wider-scale contagion issue that could potentially impact other sectors as well," the analyst said.
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johngeorge
#2
Posted 04 July 2007 - 08:44 AM
Mark S Young
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#3
Posted 04 July 2007 - 09:34 AM
Edited by da_cheif, 04 July 2007 - 09:37 AM.
#4
Posted 04 July 2007 - 09:44 AM
If you think this news means anything to the stock market.......i remember the fear generated by the Continental Illinois collapse........then the end of the world scenario born out the the collapse of the entire savings and loan industry.......how about the asian collapse........how bout viet nam........korea.......kennedy assasination.........WWI ..WWII ..civial war...war of indepence.....desert storm...granada...hitler...sputnik...castro....pee wee herman......wollie.........how about the total wipe out of the WTC.........u guys worry 2 much......SNORT
Just curious. What do you think will cause the next major correction. And at what levels ? Unless of course you think there will never be any major corrections again.
Edited by ogm, 04 July 2007 - 09:45 AM.
#5
Posted 04 July 2007 - 10:19 AM
#7
Posted 04 July 2007 - 01:59 PM
#8
Posted 04 July 2007 - 03:02 PM
Edited by kisacik, 04 July 2007 - 03:08 PM.
#9
Posted 04 July 2007 - 03:33 PM
next major correction will be a result and end product of the investing public being invited into the stock market enmass by a very sharp advance
So Cheif, The annualized rally of the SPX from the March lows is about 34%, it was more a few weeks ago since the market consolidated (so far) and 44% on NDX. Isn't this enough to lure them?
off course these invitations via a sharp advance will also accomodate exchange insider short sales
... and they've been doing that too more than before at least...
#10
Posted 04 July 2007 - 03:39 PM