Aside from the weather here in NYC (let’s just say we’re looking for the pack of screeching gargoyles encircling the office), the end is nigh for the two Bear Stearns’ Funds That Must Not Be Named (mostly because their names are so freaking long). Bear Stearns wrote a love letter to fund investors saying that there’s nothing left to lose, which would be inspirational if only it were halftime. The coup de grace, apparently, was the decline in the highest rated tranches of the ABX, which sunk to record lows on Monday. Here’s the key excerpt from the letter (link in the WSJ article):
Fund managers and account executives have been informing the Funds’ investors of the significant deterioration in performance for May and June [significantly after the deterioration has taken place]. The preliminary estimates [Dr. Spock: “There appears to be no life on this planet, sir”] show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for investors in the High-Grade Fund [by “High-Grade” we mean D+] as of June 30, 2007. In light of these returns [always look on the bright side of liquidation, do do, do do do do do do], we will seek an orderly [think Bastille Day] wind-down of the Funds over time. This is a difficult development for investors in these Funds and is certainly uncharacteristic of BSAM’s overall strong record of performance [at BASM, we don’t make the highly leveraged hedge fund fail, we make the highly leveraged fund fail better].
The subtext of the letter is pretty much, “As many of you may know, we have been pretending that there’s still value left in these funds since we had to go public with our turmoil after the banks starting seizing our assets. We hope the market will be gentle to our share price, especially considering the fact that we gave institutional investors a little more time to bail out on at least the most highly rated CDOs before the things start getting marked to market and funds finally have to start booking losses. At least our marketing geniuses anticipated this and gave our two crappiest funds the most media unfriendly names possible.”
Some are still in denial (middle market institutions that are hanging on to some Bear shares, and those crazy Lutherans), from Bloomberg:
“For them to put up so much capital, just for reputational risk, wouldn’t make sense unless they believe they won’t lose money on it,” said Erin Archer, an analyst at Minneapolis-based Thrivent Financial for Lutherans, which owns about 200,000 Bear Stearns shares.
Remember, at Bear Stearns, “Our highest priority is to continue to earn your trust and confidence each and every day, consistent with the Firm’s proud history of achievement. As always, please contact us if we can be of service. 1-800-HOWS-MY-HEDGE-FUND.”
Subprime Uncertainty Fans Out [Wall Street Journal]
Bear Stearns Tells Fund Investors `No Value Left’ [Bloomberg]
The Wall Street Journal’s MarketBeat reports that the record low the riskiest tranche of the ABX index reached yesterday (44 cents on the dollar) drew attention away from the significant drop in the highest rated tranches. When the highest rated tranches of an index start to come unglued, that usually means “Jenga!” for whatever market the index represents. Yesterday, the AAA tranche of the ABX dropped from 100 to 95, and the AA tranche dropped to 88.
As long as the ratings agencies muse about downgrading rather than doing any actual downgrading, Portfolio Managers of large CDO pools will continue to rake in management fees on significantly overvalued assets.
The London-listed $908mm Caliber Global Investment fund managed by Cambridge Place Investment Management LLP is liquidating its remaining assets and shutting down within the year. The culprit – a majority of the fund is invested in US mortgage backed securities.
Paris Hilton analogy count with regard to subprime/Bear Stearns/CDOs: 83
* 3 Paris Hilton name-checks
