HF Investors Seek Shelter From Storm

Date: Tuesday, September 16, 2008
Author: Emii.com

Hedge fund investors are trying to sidestep meltdowns, Financial Times reports.

Take the collapse of Bear Stearns’ high-grade structured credit and structured credit enhanced leverage funds, which reportedly invested primarily in triple A-rated tranches of mortgage-backed securities.

Their managers hedged their risk through credit default swaps to produce a positive carry trade, promising steady monthly returns of 100-200 basis points with limited downside.

A year after the enhanced version was brought to market, it turned out that the managers were not sufficiently hedged after all and that both funds were more highly leveraged than investors understood.

complete story at www.ft.com