Funds Fall Amidst Subprime Rout

Macquarie's Fortress Funds Fall Amid Subprime Rout (Update5)
By Stuart Kelly

Aug. 1 (Bloomberg) -- Macquarie Bank Ltd., Australia's largest securities firm, said investors in two of its high-yield funds may lose 25 percent of their money as a rout in the U.S. sub-prime market spreads.

Macquarie Fortress Investments Ltd., with $873 million of funds, was forced to sell assets to avoid breaching its loan agreements, the firm said in a statement. The company's notes slumped while shares in its parent headed for their biggest drop in 5 1/2 years.
``The contagion looks like it's spreading and some of the bigger names are now being dragged in,'' said Shane Oliver, who helps manage the equivalent of $83 billion at AMP Capital Investors in Sydney.

Funds are being caught in a downward spiral because banks are forcing borrowers to sell assets as the value of collateral declines. Bear Stearns Cos. halted redemptions from a third hedge fund yesterday while Sydney-based Absolute Capital Group Ltd. and Basis Capital Fund Management Ltd. are trying to avoid making sales at distressed prices.

``There have been no defaults in the portfolio and no reason to believe that the loans will not continue to pay their interest and repay principal,'' Macquarie Fortress director Peter Lucas said in the statement.

Asia Genesis Management, a hedge fund based in Singapore that manages about $450 million, today said it has increased cash holdings to 95 percent of its assets to avoid losses.

`More Cockroaches'
``There are still some more cockroaches to come out from under the fridge,'' Chris Viol, a credit specialist at Citigroup Inc. in Sydney, said in an interview. ``We are getting a lot of questions about the big picture and the amount of contagion to investment grade credit.''
Bear Stearns's Asset-Backed Securities Fund, with about $900 million invested in asset-backed securities, including mortgage bonds, suspended redemption after investors demanded their money back, spokesman Russell Sherman said.

Lisa Jamieson, a Sydney-based spokeswoman for Macquarie, wasn't immediately available to say whether Fortress will halt redemptions or comment on the bank's investments in credit markets.

Fortress notes, which trade on the Australian Stock Exchange, slumped 23 percent to 58 Australian cents at 3:15 p.m. in Sydney. The company aims to pay investors a 10.1 percent annual yield by investing in loans to companies with good records of repaying debt, according to a prospectus dated Feb. 3, 2006, for a third series of notes.

Leveraged Investments
Fortress uses leverage of 4.5 to 6.5 times and allows individual investors with as little as A$5,140 ($4,350) to spend to buy the notes.
Macquarie Bank's shares headed for their biggest fall since February 2002 with a 10 percent decline to A$74.61. They have slumped 19 percent over the past two weeks, wiping A$4.6 billion from the company's market value amid concern that global takeovers may decline and prices will fall in debt markets. Shares of Goldman Sachs Group Inc. and Bear Stearns dropped 14 percent and 15 percent in July.
The stock of other Australian investment-related companies fell. Babcock & Brown Ltd., the nation's second-biggest investment bank, slid 7.8 percent and Allco Finance Group Ltd., a Sydney-based manager of energy and property assets, fell 6.5 percent.

Christine Bowen, a spokeswoman for Allco, declined to say whether the company had any investments that may be affected by the U.S. credit markets. A spokeswoman for Babcock wasn't immediately available for comment.

Prices Fall
The average price of assets in the Fortress portfolios had fallen by 4 percent as at July 30, Lucas said in the statement. The value of the assets may decline a further 20 percent to 25 percent, he said. The funds had $873 million in assets on May 31.

Lucas said a ``continued deterioration in senior loan prices as we have seen in recent days'' could put Fortress in breach of lending requirements.

Investors in Fortress securities may lose A$300 million, the Australian newspaper reported earlier.

A decision on the payment of interest income for the three months ended Aug. 31 will be made nearer the payment date, and may depend on the level of loan sales, Lucas said.

Credit-default swaps based on $10 million of Macquarie Bank bonds rose $13,000 to $59,000 late yesterday, according to prices from National Australia Bank Ltd. That's up from $22,000 on July 10. Investors use the five-year contracts to speculate on credit quality. The costs, or spreads, increase as the perception of creditworthiness deteriorates.

Credit-default swaps, originally conceived to protect creditors against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to keep to its debt agreements.

``People are nervous because Macquarie looks and smells a lot like the companies that have been affected by this in the U.S.,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney.

Meat merchant Macquarie sets up Fund for the hungry

Macquarie Bank's Pastoral Fund Buys First Australian Sheep Farm
By Madelene Pearson

July 11 (Bloomberg) -- Macquarie Bank Ltd., Australia's biggest securities firm, bought the first sheep farm for its new agricultural investment fund.

The Macquarie Pastoral Fund, which didn't say how much it paid, acquired the Pooginook Merino Sheep Stud in the southern Riverina region in New South Wales state from David and Gillian Taylor, the Sydney-based company said today in an e-mailed statement. David Taylor is a non-executive director of the Macquarie fund.

Macquarie has said it will spend as much as A$1 billion ($860 million) buying sheep and cattle farms in Australia to benefit from rising red meat consumption globally. The company is in discussions to buy other properties, it said.

``Macquarie Pastoral considers the merino as an important part of the wool and meat production in Australia,'' Tim Hornibrook, director of the bank's pastoral services said. ``The Pooginook Merino Stud purchase puts the fund in a prime position to capitalize on the best merino genetics available in Australia.''

Pooginook covers 13,360 hectares (33,000 acres), according to its Web site. It produces 500 bales of 20.3 micron wool a year, 1,800 rams for stud, and also sells semen. Macquarie said it expects to announce further acquisitions in coming months.

Blackstone disposing of commercial properties recently acquired from Equity Investments Group

Hmm... Apparantly it seems likely Sam Zell sold down his commercial properties to Blackstone at a discount to market value. Blackstone probably has a better network of disposing all the properties. I have this nagging feeling Sam Zell has a long term "short" on US commercial properties.


Blackstone to Sell Atlanta Stake to Macquarie Office (Update2)
By Garfield Reynolds

June 15 (Bloomberg) -- Blackstone Group LP agreed to sell 50 percent of an Atlanta building to Australia's Macquarie Office Trust, as the buyout firm offloads assets acquired in its $39 billion takeover of Equity Office Properties Trust.

Macquarie Office will pay $122 million for the rest of Promenade II it didn't already own, the Sydney-based real estate investment trust said in a statement today. A venture of Macquarie Office and Blackstone had jointly owned five office buildings with a combined value estimated at $1.4 billion.

The venture will sell the most valuable of the remaining buildings, 10 and 30 South Wacker Drive in Chicago, which was worth about $514 million in June 2006, Macquarie Office said. Blackstone holds a 75 percent stake in that building, which has about 2 million square feet of rental space.

New York-based Blackstone has been selling off properties acquired in February when it completed what was then the biggest leveraged buyout by acquiring billionaire Sam Zell's real estate investment trust. A group led by Kohlberg Kravis Roberts & Co. and TPG Inc. has since agreed to buy TXU Corp. for about $46.7 billion, including assumed debt.

Macquarie Office acquired its half of Promenade II for $86 million in 2004 and the building's total worth was estimated at $223 million in December.

Macquarie Office and Blackstone are discussing the remaining properties they jointly own, the Australian trust said.

The companies each own half of Wachovia Financial Center in Miami, which has an estimated value of $338 million, according to Macquarie Office's Web site.

Macquarie Office owns 75 percent stakes in the SunTrust Center in Orlando, Florida, and the Pasadena Towers in California. The Orlando building was estimated at $139 million in 2004 and the Pasadena block was valued at $177 million in December.

Shares in Macquarie Office fell 2 cents to A$1.63 in Sydney, giving the company a market value of A$3.3 billion ($2.7 billion).

Macquarie's Fund Model may be unsustainable

The market seems to agree with Jim Chanos.


Macquarie's Moss Says Model Can Withstand a Decline (Update2)
By Joyce Moullakis

May 29 (Bloomberg) -- Macquarie Bank Ltd., Australia's biggest securities firm, uses a model that can withstand a decline in financial markets, Chief Executive Allan Moss said today.

``I think that our track record will continue to stand us in good stead through a whole range of market conditions,'' Moss said at a lunch in Sydney.

Macquarie has delivered a decade and a half of record annual profit by acquiring assets and bundling them into funds it manages for a fee.
Moss, 57, was responding to comments from Jim Chanos, the fund manager who predicted the collapse of Enron Corp. and last week said Macquarie has ``an inherently unstable platform.''

Chanos said the bank's shares will fall. The stock, which has gained 36 percent in past 12 months, has declined 4.2 percent since the fund manager's comments.

Macquarie's shares rose A$1.52, or 1.7 percent, to A$89.20 at 3:08 p.m. in Sydney.

The bank ``doesn't care what it pays for assets and flips those assets to entities funded by other investors,'' Chanos said last week.

Moss said that Macquarie, which scours the globe for assets with steady cash flows, pays sustainable prices when it makes acquisitions.