Research houses are looking to meet with Basis Capital Fund Management (Basis) representatives after the manager advised investors of up to a 14 per cent fall in its credit funds in the wake of US subprime-mortgage credit downgrades.
In a letter to its investors sent on July 11, Basis advised that last month its two funds, the Basis Yield Fund and Basis Aust-Rim Opportunity Fund, had lost around 14 per cent and 9 per cent respectively.
Basis said the funds had suffered from indiscriminate market-to-market pricing by dealers, despite the fund having fundamentally sound collateral and Basis deliberately avoiding the 2006 sub-prime credit issue.
"This indiscriminate pricing is largely the result of a market-wide lack of liquidity," the letter said.
Basis also added this was a situation out of its control.
Basis advised that all margin calls had currently been met and that mechanisms were in place to limit total redemptions quarterly.
"The estimates of June performance from Basis Capital are disappointing, and will require further analysis," Standard and Poor's (S&P) fund analyst David Erdonmez said.
"S&P is seeking to obtain a greater understanding of the underlying causes of the poor performance and to revisit the policies and procedures in place to manage the current challenges."
Morningstar head of research Anthony Serhan said they had also requested a meeting with Basis, but that investors should have been fully aware of the risks before investing in this style of product.
"Anyone doing their homework would know that they were investing in a very specific and potentially risky part of the market," Serhan said.
