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Today In Major Fund Turmoil

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When you’re a cowboy, on a portfolio of distressed real-estate and foreign loans you ride, liquidity is wanted (waaaanted) whether the fund is dead or alive.
The latest stirrings of major fund trouble, on the PE side, revolve around Dallas-based Lone Star Funds. Word is that the fund is suffering big losses from its MBS investments and that the last two companies the fund tried to sell resulted in pulled auctions.
The fund is heavily invested in distressed loans in Asia, particularly from the South Korean government. The two parties have been in ongoing legal battles for several years and the South Korean government has this pesky habit of raiding Lone Star offices.
Yesterday, South Korean tax officials raided Lone Star offices to seize documents regarding the fund’s $2.3 billion worth of June investment deals including the sale of Kukdong Engineering and Construction and a 13.6% stake in Korea Exchange Bank. South Korean tax officials also raided Lone Star offices in 2005 and imposed $200 million in taxes on Lone Star and four other funds heavily invested in the country.
Nothing crunches fund liquidity quite like a one-two combo of plummeting MBS returns and foreign government raids.
Lone Star Fund V is a $5 billion fund raised in 2004. Major investors include CalSTRS, NYSTRS, WSIB, OPERS and STRPERS.
South Korea tax officials raid Lone Star offices [Reuters]