Anatomy of a hedge fund collapse

Fortune has an interesting article on the collapse of the Tequesta Mortgage fund. What’s interesting is that the fund steered clear of the risky investments that others were taking. The reason is fell was due to the credit markets drying up.

In one case, Citigroup seized collateral from Tequesta and put it up for sale in a bid-list auction. According to a trader at another firm, however, Citigroup’s mortgage trading desk offered to sell Tequesta’s bonds to regional brokerage firms at prices even lower than listed prices. In another instance, Tequesta’s portfolio managers were told by Citigroup rivals that its seized bonds had been offered to other hedge funds for more than $25 below where they had been trading in the previous days.
Under that kind of pressure, Tequesta decided by early March that they’d have to shut the mortgage fund down. Tequesta, according to a firm executive, still has several portfolios open. Ross declined comment to Fortune.com on his future plans. But as long as the credit markets remain in their current miserable state, there are going to be more stories like Tequesta’s.

There’s a saying that if you can’t sell what you want, sell what you can.

Posted by on March 10th, 2008 at 10:46 am


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