Cayman Net News- The failure of two Cayman Islands-based hedge funds, which is estimated at US$4 billion in losses, could have severe repercussions on the offshore banking industry in the Cayman Islands, according to experts in the sector.
US financial giant Bear Stearns was forced to liquidate the two funds, Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd, after their target loan market collapsed.
There have also been comments about the speed of the collapse with one hedge fund folding in less than ten months after being created.
On 22 June, Bear Stearns pledged a collateralised loan of up to US$3.2 billion to bail out the Bear Stearns High-Grade Structured Credit Fund, while negotiating with other banks to loan money against collateral to the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund.
About three weeks later Bear Stearns disclosed that theses two hedge funds had lost nearly all of their value amid a rapid decline in the market for sub-prime mortgages, made to people with low credit ratings.
On 31 July, both funds filed for bankruptcy protection with the Grand Court in the Cayman Islands. Bear Stearns also used a recent amendment to US bankruptcy code to block all lawsuits against the funds and protect the company’s assets in the USA from litigation arising from the collapse of the hedge funds.
