Absolute Capital goes defensive

Stephen Van Eyk

Absolute Capital, which late yesterday announced it had temporarily closed its yield strategies funds to “protect investors”, declared as early as June 12 that it was monitoring volatility in the US sub-prime mortgage sector, but nonetheless sought to reassure investors that its exposure was less than 5 per cent.

Absolute Capital is 50 per cent owned by major investment bank ABN Amro, and industry observers have suggested that other similarly exposed managers may decide to take similar action.

The managing director of financial research company van Eyk, Stephen van Eyk, said Absolute Capital’s decision represented a knock-on effect of what was happening in the market and the inevitable reaction of investors.

Absolute Capital group managing director Deon Joubert used a letter to investors posted on the company’s website late yesterday to announce the temporary closure of the Yield Strategies Fund, claiming it was due to the current lack of liquidity in global structured credit markets.

He said that, together, the two funds had approximately $200 million invested.

“Absolute Capital believe a temporary closure of the funds is the best defensive measure to protect the longer-term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds’ investments,” his message said.

“Liquidity in the global structured credit market is currently very limited. We have taken this proactive step as other managers, which have larger exposures, are unwinding positions in the market at this time, and we believe it would negatively impact the funds’ investors to become a seller in this market, particularly given the lack of market liquidity,” Joubert said.

However, in June, Absolute Capital issued statements on its website saying: “We can expect short-term performance to be affected by the above-mentioned market volatility; however, we do not expect June distributions to be significantly affected. Our relatively small asset allocation to the sub-prime sector means the impact on the funds has been minimal compared to other parts of the credit markets. This is largely the result of our conservative approach in making asset allocation and deal selection decisions. Therefore, we maintain confidence in delivering performance in line with the long-term objectives of the funds.”