U.S. News

Fund Tied to Bear Stearns Calls Off IPO: CNBC's Gasparino


Everquest Financial, which has ties to troubled hedge funds run by Bear Stearns, has called off a planned initial public offering, CNBC's Charles Gasparino reported, citing people familiar with the matter.

Everquest was formed in May by several Bear Stearns executives and it filed for a IPO shortly afterward.

"(Everquest) has some of the same money managers as the hedge funds, and this company was essentially investing in a lot of the same instruments as those hedge funds," Gasparino said on CNBC's "Power Lunch."

Street Stories

Two Bear Stearns hedge funds have been on the brink of collapse this week after bets on the subprime mortgage market went bad. The story is being closely watched on Wall Street for its potential impact on financial markets.

Earlier Thursday, Merrill Lynch sold about $100 million of the $850 million in collateralized debt obligation bonds it seized from the troubled hedge funds.

Merrill had seized the assets on Wednesday. That move marked its departure from the fund, along with at least three other banks that closed their positions, sources told Reuters. But the failure to sell the entire block may have indicated the investment bank was unhappy with bids received on the assets, a fund manager said.

The sales of the CDOs have stirred controversy in the market since the securities are not often traded, and some managers contend the assets' values are inflated over what they could garner if sold.

The two hedge funds - called High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund - made bad bets on securities linked to subprime mortgages and turned in significant losses through April. The funds are reported to be working with adviser Blackstone Group to restructure.

In an appearance on CNBC's "Squawk on the Street", Faber said the need to liquidate the assets in the fund could not only impact the value of similar securities but also have a ripple effect on the value of other types of securities and even the recent string of leveraged buyouts.

The assets in the two Bear Stearns funds were mostly complex collateralized debt obligations, and there is concern that the liquidation of these assets could force other mortgage funds to mark down the value of their assets and realize losses on their securities.

According to Faber, many hedge funds have been investing in these types of securities because they have a high yield. These types of high-yield securities have helped fuel the private-equity boom.

"That's a larger question, and why you are seeing a lot of concern here even though these hedge funds themselves are small," Faber said. "And it may be very much contained. And this may be much ado about nothing."

Faber said that investors should watch a number of pending private-equity deals because the buyers still need to raise a lot of cash to complete them. These deals include the acquisition of First Data and Alltel.

Sources have told Faber that TPG Capital and GS Capital Partners, the private investors involved in the $24.8 billion buyout of Alltel, are attempting to place the bridge loan for the transaction much sooner than one would expect.