Friday, February 20, 2009

Highland Wipes Out Investors In Yet Another Fund

Come on, these guys are still around? I thought they shut down for good after they lost billions last year... Apparently there were some investors left who were stupid enough not to realize what a money losing proposition the house of Dondero is. Bloomberg reports that Highland's CDO fund is the latest casualty due to "the unprecedented market volatility and disruption to the financial system, and the market for structured products assets in particular." Has there been any hedge fund that has not blamed the market for its downfall? Curiously, while every weird name in the dictionary has already been used extensively in hedge fund nomenclature, no one has been smart enough to found Buy High Sell Low Capital LLC.

The CDO fund, which Barrons's brilliantly ranked among its top 50 funds with annual returns of 44.12% which would even make Stanford and Madoff blush, became terminally insolvent in recent weeks and was shut down with its assets valued at just $362 million after being worth "billions" very recently. Which makes us wonder when will the regulators go after the peculiar marking methodologies used at hedge funds, which show everything as worth 100 cents on the dollar until the actual liquidation date, when somehow overnight things receive a 99% discount.
Highland was a big pioneer in the CDO business, issuing $3.2 billion in CDO securities in 2005 and $8.5 billion in 2006, and even had the gall to IPO its CDO business. Luckily investors were spared after the IPO was later pulled.

Oh and by the way, if you are an investor, don't wait to get redemptions... as in any redemptions. Turns out the opportunity fund’s liabilities exceeded the value of its assets “to such a degree” that there won’t be anything left to satisfy unpaid redemptions to shareholders or make distributions to current investors, according to the Feb. 4 letter.

We are certain losing his investors' livelihood will cause Highland founder Jim Dondero to have at least one sleepless night.
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Anonymous said...


Anonymous said...

Used to work for the guy. Worst mistake I ever made was beliving him when he said "trust me". I wonder how may other suckers there are like I.