Basis Capital’s Yield Alpha Fund, run by Stuart Fowler, is full of what has become ‘toxic waste’ and faces a near 100 per cent loss, according to several hedge fund observers.
Basis last week warned investors that financiers had begun a forced sell-off of whatever liquid assets remained in the Yield Alpha portfolio, but its warning of a reduction in NAV that “;may exceed 80 per cent”; was described as too conservative by one investor in the fund. The investor said the asset profile of the Yield Alpha Fund, heavy with collateralised debt obligations, was similar to that of the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund, for whose assets distressed investors have been bidding 5 cents in the dollar. Meanwhile, it is understood Basis is attempting to locate a ‘white knight’, an institution prepared to soak up all the redemptions from its funds in the hope that assets assigned a ‘fire sale’ value will appreciate once sentiment around the credit markets improves. Basis’ warning of a NAV reduction of 80 per cent-plus did not allow for “;any potential actions against financiers”;. It is understood that any legal action will use a precedent set by Ellington Capital Management, which successfully sued its prime broker after it abruptly pulled the securities and collateral from one of its funds which was struggling in the Asian economic crisis environment of 1998.
The brunt of losses from the LA wildfires are expected to be borne by primary insurers and high-risk reinsurance programs, but super funds are nevertheless closely monitoring the possible impact of the fires on catastrophe bond and insurance-linked securities exposures.
Simon HoyleJanuary 17, 2025
