Australia’s $65 billion hedge fund industry is bracing for a headwind after Eureka Report named some of the big investors caught up in the Basis Capital collapse. Former Fairfax CEO Fred Hilmer, venture capitalist Roger Allen and Melbourne’s Myer Family are among those caught up in the mess.

After 4 years of solid sharemarket returns, Australia’s high net worth individuals are likely to think twice before investing in risky hedge funds, after the sub prime contagion spread to fringe financial markets that some hedge funds are known to operate in.

Vice chancellor of the UNSW and former Fairfax CEO Fred Hilmer confirmed that he had personally sunk $341,000 from his super fund into Basis Capital’s High Yield Fund. Hilmer said “I’m clearly not happy with it” when asked about his exposure.

Roger Allen, the spiritual godfather of venture capital in Australia and co-founder of Allen & Buckeridge is facing a loss of $101,000. Allen said “Look, obviously no one’s happy about losing money but there are risks in all sorts of investments, especially geared up hedge funds.”

The highly geared fund invested in collateralised debt obligations (CDOs), the values of which plummeted in the wake of the subprime mortgage crisis. As margin calls were made, assets were sold off into a falling market and the fund was placed into receivership. Units in what remains of the fund have been valued as worth anywhere between 1¢ and 20¢ in the dollar.

Peter Fray

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