A Wall Street Journal report said that Braddock Financial Corp. of Denver sent letters to investors this week with notifications it was closing its Galena Street Fund and suspending redemptions until it can sell assets in the roughly $300 million fund. Galena mainly invests in bonds backed by subprime mortgages extended to borrowers with poor credit.
According to the Journal, the fund held about $400 million 12 months ago. But it lost about $100 million as the value of subprime-related investments dropped and investors began fleeing with their money in hand, a Braddock official said.
Galena suspended redemptions to “manage an orderly liquidation of the assets,” the letter said. Galena, launched in September 2002, posted cumulative returns of 93% through January 2007.
“Given the current market environment,” the letter said, prices will likely drop this month, and “short profits are not likely to offset” the decline. The firm intends to pay all its investors 20% this week, a representative said. The firm intends to gradually pay over time.
The move is the latest sign of problems emerging from the subprime market in the U.S., the United Kingdom and elsewhere.
Another apparent subprime mortgage victim is the United Capital Asset Management hedge fund located in Key Biscayne, Florida that has also stopped letting investors withdraw money from four hedge funds, the Journal report said.
The news report said United has $500 million in assets, heavily tied to subprime mortgages, and had suffered losses and received a deluge of withdrawal requests.
United, which began four hedge funds in April 2005, says it has a cash cushion of more than $145 million as a result of recent selling and is working on a plan to meet withdrawal requests.
Last month, two hedge funds run by Bear Stearns that invest in subprime mortgages nearly collapsed.