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Alternative Market Briefing

How will the Merrill Lynch CDO sale effect hedge funds holding the same securities? The valuation questions

Monday, August 04, 2008

From Kirsten Bischoff, Opalesque New York: “On July 28, 2008 Merrill Lynch agreed to sell $30.6bln gross notional amount of US super senior ABS CDAs to an affiliate of Lone Star Funds for a purchase price of $6.7bln.” With this announcement (Source) Merrill Lynch vastly decreased the value of its holdings in these securities. Reactions to the sale included speculation on whether or not this action would put the final cap on the current credit crisis however the reverberations of this sale have yet to be seen in the hedge fund industry as the ripple effect extends out to the valuations of portfolios holding similar securities.

At the Opalesque Hedge Fund Workshop, held in New York City on July 29th, Leon Metzger, MBA, CPA, former Vice Chairman and Chief Administrative Officer of Paloma Partners, current Adjunct Professor at Columbia and New York University and a lecturer for Yale University spoke about the different questions which arise as funds value their portfolio. Touching on the Merrill Lynch sale, he raised some of the questions that managers and valuation committees at hedge funds will be addressing as they value portfolios invested in these same assets. Opalesque had a chance to catch up with Metzger and asked him more about the Merrill Lynch sale and what he says will be a very interesting case study on ......................

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