U.S. News

Australian Banks Count Exposure to Ailing Hedge Fund


The fund management arms of some of Australia's biggest banks are scrambling to assess more than A$300 million (US$264 million) in exposures to troubled local hedge fund Basis Capital, which has lost heavily in bets gone wrong in the U.S. subprime crisis.

The wealth management units of banks including Commonwealth Bank of Australia and Westpac Banking offered the Basis Capital funds to retail investors through a variety of investment platforms, the banks said on Monday.

The Australian hedge fund warned some investors last week they could receive less than 50 cents to the Australian dollar, in the latest fall-out from the subprime market's woes that have swept through Wall Street and hit two funds run by Bear Stearns.

Investors in BT Financial Group, the wealth management unit of Westpac, had A$180 million ($159 million) in Basis Capital's two funds, a spokeswoman said. She said BT was seeking more information from Basis Capital, which has said little since it suspended withdrawals from its two funds last week.

"We have withdrawn the products from the (investment) platform until we have confirmation on how redemption requests will be treated," the BT spokeswoman said.

BT Financial had a 23% jump in total funds under management to A$47 billion in the first half of the year.

Colonial First State investors, through its investment platform Avanteous, had more than A$50 million ($44 million) in Basis funds, a spokeswoman said. Colonial, Australia's biggest fund manager, is owned by the Commonwealth Bank.
Orderly Sale

Basis Capital has said its flagship fund was in default on margin calls, and it has appointed accountants Grant Thornton for an orderly sale of assets.

A Macquarie Bank spokeswoman said investors had A$75 million ($66 million) in the two Basis Capital funds, through its own and independent financial advisers.

Macquarie was seeking a meeting with Basis Capital to find out how redemptions would be affected, but had not been given any timeframe for an update, she said.

"The thing is, nobody really has that much information to go on. Until we can meet with them, we don't actually know what position we're in. "But everybody else in the market is in exactly the same position," the spokeswoman said.

Last week, ratings agency Standard & Poor's said it wanted to meet with Basis Capital to discuss how the fund is dealing with the turmoil in structured credit markets. S&P has not said whether a meeting has taken place.

St George Bank, through its Asgard funds management arm, is reported to have about A$60 million with Basis funds. The bank could not be immediately contacted for comment.

Basis Capital, which had a five-star industry rating and had won hedge fund industry awards, securities risky assets and packaged the loans into debt obligations (CDOs).

Its A$316 million ($275 million) Basis Yield Fund and its A$341 million Basis Aust-Rim Fund had steep losses in June.  Basis Capital has removed details of the funds from its website, and local
media have reported the fund was on the "brink of collapse".