A gloomy bookend to a gloomy day for the credit markets, news that the hedge fund group Stone Lion Capital Partners is barring redemptions from a $400m credit fund….
The message from Stone Lion to its investors is that they will be better off if it does not have to dump positions on to the market quickly, after months of weakening prices and growing concerns about illiquidity in the credit markets.
New York-based Stone Lion is run by former Bear Stearns high-yield bond traders Gregory Hanley and Alan Mintz…. [Link]
The news that former Bear Stearns bond traders are shutting redemptions on their fund would be Déjà vu for many.
If it is not Stone Lion, it is LionEye. They are not barring redemptions. They are shutting shop.
LionEye Capital Management, the investment firm led by Stephen Raneri and Arthur Rosen, is shutting its main hedge fund after losses, according to a person with knowledge of the matter.
The firm managed $1.7 billion of regulatory assets, a measure that can include leverage, at the end of last year, according to a filing. Rosalia Scampoli, a spokeswoman for the New York-based firm, declined to comment on its plans.
LionEye’s fund is shutting amid the worst year since 2011 for strategies that make wagers on corporate events like mergers, spinoffs and restructurings. [Link]
This is a big one and it seems to have been announced late on Thursday, after markets closed in New York (my guess).
New York-based Third Avenue Management is blocking investors from withdrawing their money from a near $1 billion junk bond fund as it tries to liquidate the fund in the biggest failure in the U.S. mutual fund industry since the Primary Reserve Fund “broke the buck” during the 2008 financial crisis….
Heavy redemptions and losses since the end of July cut the size of the Third Avenue Focused Credit Fund by more than half, with assets falling below $1 billion from $2.1 billion, according to Lipper. The latest data from Morningstar Inc showed the fund with just $789 million in assets, as of Thursday…..
About a year ago, the Focused Credit Fund had $2.75 billion in assets, but 18 percent of that amount included exposure to securities deemed illiquid. These so-called Level 3 assets typically carry valuations pegged to assumptions made by the investment managers themselves…
The fund’s year-to-date total loss of 26.98 percent is nearly nine times worse than the 3.0 percent average loss in the junk bond sector, according to Lipper. [Link]
Now, they (some commentators – see my post here, for example) will already blame the Federal Reserve for this. Actually, it is not the impending rate hike but the long period of rate inaction that is behind this.
Post-crisis repair and recovery – because they simply became ‘extend and pretend’ by other means – had resulted in a relapse into behaviours that brought about the crisis of 2008 in the first place. The Fed must now go through with its rate hike. Otherwise, its credibility would be badly damaged. If it did, it would be blamed for events which have their roots in the zero interest rate policy and not in the 0.25% rate hike.
Central banks’ hubris and their QE policies are again to be blamed much more intensely for the next crisis that is coming, just as they were responsible for the previous one. The difference was that the weights between hubris and incompetence tilted slightly more towards the latter pre-2008 and now, the weights on both factors are equal.