Australia's Basis Yield Alpha Fund Files for Bankruptcy


Liquidators of Basis Capital's Basis Yield Alpha Fund said on Thursday they were assessing if the fund could pay back investors, after it was placed into provisional liquidation on Wednesday.

"At this stage we are undertaking an immediate assesment as to the financial position of the fund and likely return to investors," Paul Billingham, national head of recovery and reorganisation for Grant Thornton said in a statement. "We will issue a further statement once this is clarified," he added.

Basis and fellow Australian-managed hedge fund Absolute Capital, along with two funds managed by Macquarie Bank, suffered heavy losses in the aftermath of a crisis in U.S. sub-prime market.

But industry figures said the vast majority of Australian hedge funds, which oversee assets worth about A$70 billion (US$57 billion), based their investment strategy on equity plays, which had not been affected.

"We haven't seen much instability outside of fixed interest and credit markets," said Kim Ivey, Australian head of industry body, the Alternative Investment Management Association.  "All other strategies apart from fixed income and credit arbitrage have done relatively well. I haven't see any signs of problems spreading to other parts of the industry," he added.

Basis Yield Alpha Fund, a hedge fund specialising in corporate and structured credit, filed for bankruptcy protection in the United States on Wednesday amid mounting losses from U.S. subprime mortgage assets.

Absolute warned earlier this week its Absolute Capital Yield Strategies Fund delivered a negative return about 8-9 percent between July and end August, but some stability was returning.

Non-bank Australian mortgage lender RAMS Home Loans Group, which failed to roll over A$6.17 billion in short-term loans in the U.S. commercial market, has also seen is share price plummet. RAMS said it would refinance the outstanding loans with the support of Australia and overseas banks.

The Cayman Islands-registered Basis Yield Alpha Fund, run by the Australian firm Basis Capital, listed more than $100 million of assets and more than $100 million of liabilities in its filing with the U.S. bankruptcy court in Manhattan.

The fund firm managed nearly $1 billion earlier this year and targeted positive margin above LIBOR.

In court papers, Basis Yield said it had in June begun to suffer a "significant devaluation" in its asset portfolio, following market volatility related to U.S. subprime lending defaults.

It said the devaluation led to margin calls, which it was unable to meet, and the issuance of several default notices by counterparties seeking to close out trades or seize assets.

Basis said JP Morgan Chase Bank NA, Goldman Sachs International, Citigroup Global Markets Limited, Morgan Stanley, Lehman Brothers International and Merrill Lynch International all issued default notices.

Earlier in the month, the hedge fund firm told investors that one of its portfolios had lost more than 80% of its assets. Basis is among a growing number of hedge funds to have be plagued by the credit market turmoil. In July, Sowood Capital lost $1.5 billion and was forced to close down.