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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (19775)	10/11/2004 9:15:00 AM
From: ild	Read Replies (1) \| Respond to of 110194

Marin Hedge Fund Puts Limits On Withdrawals by Investors By HENNY SENDER and DAVID REILLY Staff Reporters of THE WALL STREET JOURNAL October 11, 2004; Page C4 Marin Capital Partners LP, a $2 billion hedge-fund firm on the West Coast, is imposing limits on investors wanting to pull their money, several investors say. The Marin fund specializes in the trading of corporate bonds that convert into equity. The new limits have triggered fears that the pressure to raise money for nervous investors by selling bonds may lead to a cascade of problems for other hedge funds and the convertible-bond market itself. ... Here is how requests for redemptions can avalanche into a problem for a fund such as Marin: Say a hedge fund holds $10 million in convertible bonds of a company that originally issued $100 million in bonds. The hedge-fund manager can sell, perhaps, $5 million of the bonds at the price they are valued at on the books of the fund to meet the demand of investors to have their cash back. But the Wall Street firms that buy and sell these bonds then mark down their value on the basis of that one trade. Suddenly, the remaining $5 million holding is valued at a lower amount. That then makes investors more nervous, leading to more requests to withdraw money, leading to more markdowns and potential losses. If a fund uses borrowed money as well as capital from investors, the pressure is even greater. Many convertible-bond funds, in fact, use borrowed money, so that a $2 billion fund such as Marin controls assets valued at between $4 billion and $8 billion, these investors say. In addition, more investors in hedge funds are institutions such as pension funds. These institutional investors, with all sorts of carefully defined legal obligations, tend to be risk-averse and more likely to pull their money at the first sniff of trouble. They are far more cautious than are wealthy families, traditionally the largest investors in hedge funds. online.wsj.com