The saga of Bear Stearns' High Grade Structured Credit Strategies Enhanced Leveraged Fund is worth following--and worrying about. Recall that Merrill Lynch has given the fund a lifeline of sorts by agreeing to delay the sale of $400 million in securities held as collateral in the Bear Stearns fund. A sale, of course, would have effectively spelled the demise of the fund, which had sold off $4 billion in securities in low-rated bonds, many tied to subprime mortgages. The sale was apparently made to meet some margin calls related to short bets that did not pan out. So Bear Stearns has bought itself some more time here. You have to wonder if we're in for more of this kind of intra-bulge bracket bargaining. Bear is not the only one that will face a rough time. There are fears that all this will ripple through the industry. Stay tuned.
Our take on this news: The hedge fund industry isn't just in trouble, it is in serious trouble. There will more situations like this in the future and will require new regulations for the industry to follow. If they folow the new regulations, history shows that the industry violates regulations on a regular basis.
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