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Bear Stearns halts payout on 3rd fund

August 01, 2007|From Times Wire Services

Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted withdrawals from a third fund after credit-market turmoil prompted investors nervous about credit-market troubles overwhelmed it with demands to get their money back.

The fund had about $900 million invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said.

The fund's stumble illustrates how the sub-prime crisis has spread to other sectors of the debt market. Unlike the two hedge funds that collapsed, the third fund had only a small portion -- less than 0.5% -- of its portfolio invested in securities backed by sub-prime mortgages, Sherman said.

"This shows you don't necessarily have to be a sub-prime fund now to be having problems," said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.

New York-based Bear Stearns has no plans to close the fund, Sherman said.

"We don't believe it's prudent or in the interests of our investors to sell assets in this current environment," he said. "The fund portfolio is well positioned to wait out the market uncertainty."

The fund reportedly was up 5% this year through June before its performance plummeted in July.

News of the halt in withdrawals came after the close of the stock market's regular session, during which Bear Stearns shares sank $6.03, or 4.7%, to $121.22. In after-hours trading, the stock slid 3.5% to $116.95.

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