Take a creaking CMBS market, mix in some leverage and voila: liquidation, just like that. The Journal reports that one of the first to explode was one invested in and backed by Ross Perot, the man who might have been President:
Parkcentral Global Hub Ltd., the fund overseen by Parkcentral Capital Management LP, a Plano, Texas, firm controlled by the Perot family, peaked this year at $2.5 billion in assets. It used borrowed money to amplify its bets, said people familiar with the matter, and began dumping assets last week.
That leverage helped hasten the fund’s meltdown as the commercial mortgage-backed securities, or CMBS, market cratered last week, and the borrowings also could leave lenders with tens of millions of dollars in losses, the people said.
A Parkcentral spokesman Tuesday confirmed that the fund has been forced to liquidate to pay off creditors, but he declined to elaborate. He blamed the “unprecedented upheaval of the capital markets in general and the freezing of credit markets in particular.”
The nose dive of commercial real-estate debt marks the latest blow for hedge funds, which globally are having their worst year on record. Some investment managers are trying to persuade investors to pony up more money to shore up funds.
No doubt all these commercial real estate funds offered the promise of uncorrelated returns, just like every other fund that’s blown up.
Business Insider Emails & Alerts
Site highlights each day to your inbox.