Two Bear Stearns Hedge Funds Collapse

by Darren

The idea is simple: you put your money in a fund, so that a professional will manage your money wisely. This means you can’t lose it all, right? Wrong! As is clearly the case, Bear Stearns has fared no better with two hedge funds than the most rank amateur.

Bear Stearns late yesterday informed investors in two battered hedge funds that their investments have become practically worthless. The firm’s higher-risk Enhanced Leverage Fund, vested heavily in subprime mortgage assets, has effectively lost all of its value, but the more conservative High-Grade fund is also down 91 percent. Bear Stearns shares dropped 3.6 percent in after-hours trading. (The New York Times, free registration required) At the end of March, the Leveraged fund held $638 million of capital and the High-Grade fund $925 million. The meltdown is a “watershed” event, said Sean Egan of Egan-Jones ratings. “It begs the question of how other market participants have fared.

The funds were top-heavy in sub-prime mortgages, a market that has all but collapsed, burning investors along the way. This is one more example that the best person to manage your money, is probably you.