Sub-Prime Disease Hits Asia
"For there is no defense for a man who, in the excess of his wealth, has kicked the great altar of Justice out of sight."
Aeschylus, Greek poet, 525 BC
Reports that the once highly-regarded US$1 billion Basis Capital has suspended investor withdrawals in early July due to the now spreading sub-prime situation hitting a good portion of their hedge fund investments sent concerned rumblings throughout boardrooms in Asia. This followed another Australia-based hedge fund that fell foul of the same U.S. sub-prime exposure, Absolute Capital, which had around US$175 million.
Further damage is likely to impact many Asia-dedicated fund of hedge funds that almost certainly had exposure to Basis Capital. There are approximately 120 of such so-called Asia dedicated fund of hedge funds so the recent downturn combined with ongoing performance issues related to Japan would almost certainly have offered yet another "black eye" for their investment performance heading into 2H07. Focus here might be on those products with small AUM and concentrated exposures to underlying managers. Watch out!
Not only hedge funds, but also some of the region's banks and brokers been forced to write-down exposure to U.S. sub-prime assets (Nomura to the tune of US$260 million). Almost certainly, there are other Japanese banks and brokers impacted too.
Not only that but a number of Japanese financial institutions are believed to have expanded their portfolio exposure through various CDOs structures in the chase for yield. Apparently the sum might be as high as US$8.3 billion which is frighteningly big. It will be interesting to see how some of the stock prices of many of these publically traded firms will react going forward.
Yes, we all know that sub-prime mortgages comprise only 14% of total mortgages and we all know that mortgage deliquencies are rising but what we don't know is the manner in which investors have exposure (either direct or indirect) into assets whose performance is tied to the returns of many of these essentially poor-credit loans. The fact that many of these pooled vehicles were "rated" made them all the more enticing. Who said that the Savings and Loans type historical mis-step could not repeat itself?
As ever, this developing situation highlights yet again the challenges involved in the due diligence process to understand fully the risks involved in investing, even if the negative situaion originated on the other side of the world. This is not just a hedge fund issue.
Mahalo.
"For there is no defense for a man who, in the excess of his wealth, has kicked the great altar of Justice out of sight."
Aeschylus, Greek poet, 525 BC
Reports that the once highly-regarded US$1 billion Basis Capital has suspended investor withdrawals in early July due to the now spreading sub-prime situation hitting a good portion of their hedge fund investments sent concerned rumblings throughout boardrooms in Asia. This followed another Australia-based hedge fund that fell foul of the same U.S. sub-prime exposure, Absolute Capital, which had around US$175 million.
Further damage is likely to impact many Asia-dedicated fund of hedge funds that almost certainly had exposure to Basis Capital. There are approximately 120 of such so-called Asia dedicated fund of hedge funds so the recent downturn combined with ongoing performance issues related to Japan would almost certainly have offered yet another "black eye" for their investment performance heading into 2H07. Focus here might be on those products with small AUM and concentrated exposures to underlying managers. Watch out!
Not only hedge funds, but also some of the region's banks and brokers been forced to write-down exposure to U.S. sub-prime assets (Nomura to the tune of US$260 million). Almost certainly, there are other Japanese banks and brokers impacted too.
Not only that but a number of Japanese financial institutions are believed to have expanded their portfolio exposure through various CDOs structures in the chase for yield. Apparently the sum might be as high as US$8.3 billion which is frighteningly big. It will be interesting to see how some of the stock prices of many of these publically traded firms will react going forward.
Yes, we all know that sub-prime mortgages comprise only 14% of total mortgages and we all know that mortgage deliquencies are rising but what we don't know is the manner in which investors have exposure (either direct or indirect) into assets whose performance is tied to the returns of many of these essentially poor-credit loans. The fact that many of these pooled vehicles were "rated" made them all the more enticing. Who said that the Savings and Loans type historical mis-step could not repeat itself?
As ever, this developing situation highlights yet again the challenges involved in the due diligence process to understand fully the risks involved in investing, even if the negative situaion originated on the other side of the world. This is not just a hedge fund issue.
Mahalo.
posted by Franklin Scruggins | 7:54 AM
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