Investors in two high-yield funds managed by Macquarie Bank Ltd.'s Fortress Investments Ltd. face losses of up to 25 per cent because of volatility in global credit markets.
The average price of assets in the portfolios fell 4 per cent in June and maybe another 20 to 25 per cent in July, Peter Lucas, director of Macquarie Fortress Investments, said late Tuesday in a statement.
Fortress is the third fund manager in Australia to flag serious problems, and the latest sign that the fallout from the U.S. subprime mortgage sector is spreading wider. The sector includes loans made to people with shaky credit histories.
Australia has the largest hedge fund industry in Asia, according to the government, and Australian hedge funds have been some of the first to say that the global widening in yield spreads has cut deep into their value.
The Fortress funds weren't directly exposed to U.S. subprime mortgages, but problems in that sector have pushed down the value of riskier investments in credit markets generally.
Macquarie Bank doesn't have any direct exposure to the funds, a spokeswoman said.
Still, Macquarie Bank shares fell 10.7 per cent to $73.70 Australian ($66.58 Canadian) amid concerns its business model could be hit by the fallout in credit markets.
The sharp fall in value of the Fortress funds follows moves by two other Australian funds, Basis Capital and Absolute Capital, to freeze investors' money, because of a fall in the value of their investments. The funds are invested in senior secured U.S. corporate loans.
Mr. Lucas said the underlying assets in the Fortress funds are fundamentally healthy. There have been no defaults in the portfolios, and the loans should continue to pay interest and the principal should also be repaid, he said. But there are "supply/demand imbalances in the senior loan market."
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