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Y2K Finance Hedge Fund Halts Redemptions and Sales (Update4)

By David Clarke

Sept. 11 (Bloomberg) -- Y2K Finance Inc., the flagship hedge fund of Wharton Asset Management, will halt redemptions until at least December because of credit market turmoil.

Y2K Finance will stop calculating net asset value ``due to current market turbulence,'' the fund, based in the British Virgin Islands, said in a statement today.

Wharton Asset Management specializes in investing in asset- backed securities. Investors are shunning bonds backed by home loans after late mortgage payments by U.S. borrowers with poor credit histories rose to the highest since 2002, rattling debt markets. The London-based firm joins at least 10 other investment managers, including New York-based Bear Stearns Cos., forced to shut down funds or suspend client redemptions since July.

Managers of asset-backed funds ``could be in a lot of pain over the next few months,'' said John Godden, head of London- based IGS Group, which invests in hedge funds. ``There are no decent valuations on any of this stuff.''

The fund dropped 7.31 percent in June, for a year-to-date loss of 5.24 percent, according to data compiled by Bloomberg.

Maurice Salem, who founded Wharton in 1993 and runs the firm, didn't answer calls to his mobile phone. Calls to the company's offices in London weren't returned. The Y2K fund was established in 1999.

Wharton's Trio Finance Ltd. fund, which invests in real estate asset-backed securities, has fallen 46 percent this year, according to Bloomberg data.

Frozen Funds

Bear Stearns in July sought bankruptcy protection for two hedge funds. Basis Capital Fund Management Ltd. and Absolute Capital Group Ltd., both of Sydney, froze investor accounts, and Basis sought bankruptcy protection in August for the Basis Yield Alpha Fund.

Synapse Investment Management LLC, the London-based hedge- fund manager that oversaw money for a German bank bailed out in August, said last week it shut one of three fixed-income funds after ``severe illiquidity'' in the market.

Caliber Global Investment Ltd., overseen by hedge-fund manager Cambridge Place Investment Management LLP, said in June it planned to close and sell assets after investments in securities backed by mortgages went awry.

Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested. The industry oversees more than $1.7 trillion, almost triple the amount five years ago, according to Chicago-based Hedge Fund Research Inc.

To contact the reporters on this story: David Clarke in Edinburgh at [e-mail] .