It seems like the biggest story of the last 4 weeks, the problems at two Bear Stearns hedge funds involved in subprime mortgage backed securities, is coming to an end. In a letter to clients (subscription required) Bear had this to say about the funds:
The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High Grade Fund as of June 30, 2007.
That’s a pretty stunning revelation. It’s no surprise that the highly leveraged fund has gone belly up since a small downward move in the value of the assets in such a heavily leveraged fund can completely wipe out the fund’s equity. But I didn’t expect the less leveraged fund to be completely wiped out. I thought it would lose say 30-50% of its value.
Bear opened down about $3, more than 2%, but is now off only 79 cents. I don’t know why it’s not down more.