Today was the day that Bear Stearns was to issue its delayed report on the net asset value of its two failed hedge funds. As we had indicated, investors who had tried selling their interests for 11% of their April value did getting any takers. There had been bids of 5% on the more leveraged fund (which also had held higher quality assets), the Enhanced Leverage Fund, and investors would have been wise to take them. Bear announced that that fund is worthless, and the older, less leveraged fund has a value of roughly 9% of its end of April value. From the Wall Street Journal:
Weeks after the meltdown of two prominent Bear Stearns Cos. hedge funds that bet heavily on the market for risky home loans, the brokerage has told the funds’ investors that the portfolios’ assets are almost worthless, according to people familiar with the matter.
The assets in Bear’s more-levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the larger, less-levered fund are worth roughly 9% of the value since the end of April, these people said. The April valuations were not immediately available, but in March, before their sharp losses, the enhanced leverage fund had $638 million in investor money, while the other fund had $925 million.
The two funds have been in the spotlight for weeks after suffering heavy losses in the subprime market. Late last month, Bear helped stabilize the less-levered fund with a $1.6 billion secured loan; the enhanced fund began trying to unwind its remaining $1.1 billion in debt.
Note that this article addresses only value to equity investors. It remains to be seen whether creditors to the Enhanced Leverage fund will get out whole (if the equity investors were wiped out, the creditors may take a hit as well).
Update 9:00 PM. The Financial Times had this to add:
The losses, especially for the less leveraged of the two funds, were worse than investors expected.
“They are a big investment house. They are supposed to be professional,” said one fund of funds executive. “There is nothing to do now except maybe go shoot the guy who did it.”