Basis Yield Fund losses widen

Hedge fund manager Basis Capital reported to investors yesterday that the reduction in the Basis Yield Fund's net asset value might exceed 80 per cent.

Previous guidance had suggested that Basis hoped to recover 50 cents in the dollar for investors in the failed fund.

Basis is a specialist investor in structured credit (including credit default swaps, and collateralised debt obligations) and is recognised for its appetite for the highly risky equity tranches of CDOs.

Its Basis Yield Fund got into trouble as a result of its exposure to US sub-prime mortgage securities through its CDO holdings.

In July Basis stopped redemptions from its two funds, the Yield Fund and the Aust-Rim Diversified Fund, and then announced that the Yield Fund was in default on margin loan payments and would be wound up.

Both funds are feeder funds, with the ultimate investment management being made through offshore master funds, the Basis Yield Alpha Fund and the Pac-Rim Opportunities Fund

Yesterday's disclosure notice said:  "The Master Fund has suffered the forced sale of some of its assets by secured creditors and the purported closing out of positions by some financiers as a result of a global market-wide increase in risk aversion and a general desire by the financiers to reduce their exposure to these assets.

"Both are likely to contribute to a reduction in the net asset value of the fund's units.

"The Master Fund is taking steps to protect its investors and, in particular, is considering its position with respect to the actions of its secured creditors.  

"In a number of instances, the Master Fund has referred matters to its legal and financial advisors in order to explore all possible avenues, which may assist in maximising returns to all investors.

"The situation in global structured credit markets remains fluid and uncertain and BCFML is presently unable to accurately estimate the reduction in the NAV of the units in the Fund."

In a separate disclosure issued yesterday Basis Capital said the second of its local funds, Aust-Rim Diversified Fund "had an approximately 50 per cent exposure to liquid high yield Asian and emerging market credit securities and a 50 per cent exposure to structured credit securities which included a $US79 million (approx) investment in the Basis Yield Alpha Fund."

Basis said the Aust-Rim fund financiers had increased their margin requirements. Redemptions from the fund would remain frozen.