Australia's Basis Capital Fund Proposes Split: FT

Australian hedge fund Basis Capital has proposed splitting its surviving fund in two to save the business, which has been hit by its exposure to risky credit derivatives, the Financial Times newspaper reported.

Basis Capital spooked Asia-Pacific markets in July when it warned that some investors may receive less than 50 cents in the dollar in two of its funds, the first evidence that fallout from the U.S. subprime mortgage meltdown was spreading to the region.

Basis Capital wrote to investors in its Pacrim Opportunity fund last week to propose separating its struggling structured credit investments from the better-performing Asian high yield operation, the newspaper said in a report on its website dated Sunday.

Basis told investors the Pacrim Opportunity fund fell by about half in June and July. The newspaper said the fund was believed to have had more than US$200 million at the start of the year.

Basis was not immediately available to comment on the report.

The Basis Yield Alpha Fund, which manages roughly US$1 billion, filed for bankruptcy protection in the United States in August and liquidators are assessing how much money may be returned to investors.

Basis and fellow Australian-managed hedge fund Absolute Capital, along with two funds managed by Macquarie Bank , suffered heavy losses in the aftermath of the subprime crisis.