Bear Stearns To Report Hedge Fund Results Late

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In “Bear Stearns Investors Await Tally on Losses,” the Wall Street Journal reports that investors in the two troubled Bear Stearns hedge funds won’t get end of May results until July 16.

While this delay is probably crazy-making for fund holders, Bear is no doubt erring on the side of conservatism. Recall that the High-Grade Structured Credit Strategies Fund initially reported a 6.75% loss for April but two weeks later revised it to closer to 18%. No doubt that is one of the matters the SEC will be probing in its investigation of the Bear Stearns hedge funds collapse. The last thing Bear wants to do at this point is create more trouble for itself.

From the Wall Street Journal:

Investors in two Bear Stearns hedge funds will have to wait until as late as July 16 to learn how much money they have lost.

The Wall Street firm has had difficulty calculating the funds’ fair value, apparently because many of the mortgage-related securities they hold are thinly traded and the market for them has been volatile.

“In light of the Funds’ circumstances, this process is more time-consuming than in prior periods,” Bear’s asset-management arm said in a “Dear Investor” letter dated Friday. It told investors that net asset values as of May 31 would be calculated “on or before July 16,” and that it would make its best effort to calculate an estimate of the June 30 value of the two funds by the same time.

It “has determined not to release an estimated NAV in the interim,” Bear Stearns Asset Management Inc. said in the letter.

A Bear Stearns official declined to comment on the letter.

Investors are watching the process closely because they believe that other hedge funds also are holding thinly traded mortgage-related securities, and they want to see how far Bear thinks their value has fallen.

Last month, the more indebted of the two funds, the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage fund, reported that its value fell 6.75% in April. Two weeks later, it put the loss at 18%. Values are believed to have fallen further since then, and the declines have caused some investors to flee funds that make such investments.

As of March 31, the Enhanced Leverage fund had $638 million in investor capital and at least $6 billion in borrowings. It used the money to make $11.5 billion in bullish bets and $4.5 billion in bearish bets, according to documents reviewed by The Wall Street Journal.

Its sister fund, the Bear Stearns High Grade Structured Credit Strategies fund, had $925 million in investor money, and made $9.7 billion in bullish bets and $4 billion in bearish bets.

In an effort to support the latter fund, which has fewer loans and is considered easier to salvage, Bear Stearns has announced that it would take over $1.6 billion of the fund’s debt, which Bear said is collateralized.

In June, the two funds were forced to sell about $4 billion of assets to meet margin calls, which are calls to repay debt to brokers.

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