Basis Capital has asked investors in the Australian manager’s surviving hedge fund for permission to split it in two in an attempt to rescue the struggling business, which was hammered by the US subprime crisis.
Sydney-based Basis wrote last week to investors in its Pac-Rim Opportunity fund to suggest separating its hard-hit structured credit investments from the Asian high yield operation, which has done far less badly.
The fund, which is thought to have had more than US$200m at the start of the year, fell by about half in June and July, the company said last week, mostly due to structured credit.
The restructuring follows the collapse of the larger Basis Yield Alpha structured credit fund, which started the year with about US$700m but was driven into liquidation after missing bank margin calls.
Basis, which is being advised by US private equity group Blackstone, has decided not to reset the level at which 20 per cent performance fees are charged after splitting the Pac-Rim fund, so they will not be paid until investors make back their losses.
This contrasts with the plan put forward by Absolute Capital Management, a Majorca-based and London-listed manager, which is trying to split five funds after discovering its former chief investment officer had put large sums into illiquid US micro-cap companies. Absolute has asked investors to approve a reset of performance fee levels to ensure it has enough revenue to continue paying staff.
Basis said it hoped that splitting the fund would allow it to begin raising new assets, providing liquidity to investors who at present cannot withdraw their money. Investors would be given shares in each of two new funds in proportion to the holdings in the current fund.
The Pac-Rim fund dropped almost 14 per cent in June, according to a newsletter sent out last Thursday, almost all of it from the structured credit investments.
In July it dropped a further 33 per cent, Basis said, hurt in particular by its holding in its now-bankrupt sister fund.
Basis was among the first in a series of hedge fund managers specialising in credit to be hit by the subprime crisis and credit squeeze, with others including two bankrupt Bear Stearns funds and Sowood Capital Management.