Braddock to close Galena hedge fund
Losses on sub-prime mortgage securities claimed another hedge fund Thursday as Braddock Financial Corp. said it would liquidate its $300-million Galena Street fund after investors sought to withdraw more than 60% of its assets.
The fund’s closure comes just days after Key Biscayne, Fla.-based United Capital Markets Holdings Inc. suspended redemptions on its funds exposed to the sub-prime sector.
Galena Street lost 3.5% in the first five months of this year, followed by a loss of 6% to 8% in June, as increasing defaults on mortgages issued to the riskiest borrowers reduced the value of the fund’s holdings, said Harvey Allon, chief executive of the Denver-based company.
The decline in prices of sub-prime mortgage bonds accelerated in June as two hedge funds run by Bear Stearns Cos. collapsed. Galena Street had $500 million at its peak in 2005. Unlike the Bear funds, it has no debt, according to a July 2 client letter. Braddock is considering starting a new fund to wager on volatility in mortgage-backed securities, Allon said.
“If Bear hadn’t been out there, it’s hard to speculate what would have happened to us,” he said. “We’re looking at different ways to take advantage of opportunities in the market and will make decisions probably in the next few weeks.”
Braddock managed a total of $2.8 billion in assets as of Jan. 30, according to a filing with the Securities and Exchange Commission. In addition to its hedge funds, the firm manages so-called collateralized debt obligations backed by mortgages and other assets.
Galena Street clients will receive cash representing about 20% of their stakes this week. Additional refunds will follow as managers sell assets, the investor letter said.
The fund, which was started in 2002, returned 6.85% last year. Hedge funds globally returned an average of 13% in 2006, lagging behind the 15.8% gain of the Standard & Poor’s 500 index, according to Chicago-based Hedge Fund Research Inc.
Since it was formed in 2002, Galena Street has gained about 12% a year on average, according to the client letter.
