Hedge Funds, Administrators Battle Over Asset Reflux

Date: Thursday, August 2, 2007
Author: Hedge Fund Daily

Investors in hedge funds linked to the subprime mortgage and credit sectors eagerly waiting for performance reports for July are going to sit tighter than they expected as the funds and their administrators haggle over how to value assets. “There is a lot of wrangling going on behind the scenes,” one U.S. banking official told Financial Times, “because it’s getting hard to agree [about] how to value a lot of stuff.” The official said further, “The bid-offer spreads can be incredibly wide” – and that can affect net asset value.” In the best of times, notes FT, it is difficult to assess value for hedge funds in these sectors because the markets are illiquid, so they rely on models to value the funds. However, according to FT, there is uneasiness to rely on these models now that conditions in the troubled sectors turned out to be worse than assumed. And wild credit-price swings are just making the situation worse: “Illiquidity is making those month-end [valuations] marks look atrocious,” analyst Suki Mann of SG Capital Markets said in an FT interview. Another worry: Wide differences in the perceived value of HF portfolios could affect investor confidence and could come back to haunt the funds in the form of lawsuits