A warning by hedge fund manager Basis Capital last week that it could be forced to limit investor withdrawals to avoid collapse has not impressed Standard & Poor’s Fund Services.
The ratings service announced today that it would be seeking a meeting with Basis’ management to discuss the underperformance of its Basis Yield Fund and Basis Aust-Rim Fund against the backdrop of adverse developments in the structured credit market.
S&P will essentially ask Basis, which has about $2 billion in funds under management, to address the underperformance of the two funds in the light of disappointing estimates of the two funds’ June performance.
“We will be seeking to obtain a greater understanding of the underlying causes of the poor performance of the two funds … prior to clarifying their current ratings,” said S&P fund analyst David Erdonmez.
The June performance projections were the trigger for Basis’ warning — carried in a letter to clients — that it could be forced to invoke a contractual clause to prevent a potential run of withdrawals by worried clients.
This clause, which has not been used in Basis’ eight-year existence, prevents clients pulling out their investments for the funds after the funds have incurred losses of up to 14 per cent.
