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Archive for March, 2008


Citigroup Adds Funds to Mat and ASTA

The investing public and Wall Street has surely made note of the recent bailout of megabank, Citigroup’s, Asta and Mat hedge funds due to uncertainty in the once-safe municipal bond market. The latest news brings one more warning to be wary of hedge funds whether you invest in them or manage them.

According to Financial Times online in a March 11 article by Francesco Guerrera, Citigroup initiated a $1 billion bailout of six internal hedge funds, with $600 million in additional capital and another $400 million targeted to boost the shaky funds.

With growing losses on mortgage-related products, could bond insurers forfeit their coveted triple-A ratings? That question has triggered extensive turmoil in the municipal bond market. For brokerage clients and affluent bank customers who bought Citigroup’s Asta and Mat funds, the plummeting municipal bond prices resulted in potential margin calls by prime brokers.

The bailout by Citigroup showcases the risks taken by many Wall Street firms when they created or bought hedge funds in order to boost trading profits and collect high fees from investors. Of course, those risks also affect the investors in hedge funds. Because of the lack of transparency in the funds, hedge fund investors are at a disadvantage.

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