Monday, October 08, 2007

Another big hedge fund collapse: Ellington Capital Said to Freeze Funds

Ellington Capital Management, the country’s largest mortgage-backed securities hedge fund, sent a letter to investors notifying them that redemptions and withdrawals in two of its funds would be suspended because of a sharp decline in the liquidity of certain mortgage- and asset-backed markets, The New York Post reported.

The Old Greenwich, Conn.-based hedge fund, which has $5.2 billion in assets, is considered a bellwether for measuring the health of the mortgage-backed securities market.

The fund’s redemption suspension covered two mortgage-credit funds with about $1.9 billion in assets between them, according to The Post, which cites an investor letter from Michael Vranos, the fund’s general partner.

Ellington is a well-known player in mortgage-backed securities, but its timing in doubling down on subprime assets now seems ill-advised. In April, it bought $2.9 billion in loans from a troubled subprime lender, Fremont General.

A few months later, Ellington sought a private-placement sale of a stake in an affiliate, Ellington Financial, which deals in subprime securities. But the deal prompted criticism from The New York Times’ Gretchen Morgenson, who asked if Mr. Vranos was unloading subprime assets at a higher price than they would have fetched in the then-deteriorating market.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.