Bear Stearns

No doubt by now you've read the update on the two beleaguered BSC hedge funds. If you've not been updated, here's a blurb:

"The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007," according to the letter. A copy of the letter was obtained by Reuters.
Separately, a source familiar with the funds said the net asset value for the High-Grade Structured Credit Strategies Fund is about 9 cents on the dollar.

There are two critical questions. There both obvious, so you're not getting anything new or insightful here, but it bears repeating.

• Question I: WHO IS invested in these funds? Since pension and retirement funds have become more adventurous, and since the insurance companies (I went back to HIG's 10-K and looked at their investments in MBS/CDO's). I'm sure that we'll see this stuff popping up. Interestingly, I've not seen any press talking about the WHO (e.g insurance companies, etc). I find that odd. Wouldn't that be good investigative journalism?
  

• Question 2: Which other hedge funds are invested in this stuff? There are two things at work. First, you have people who knowingly invested in these instruments. Second, though, people people invested in hedge funds but did not understand the types of investments (activities) in which the fund were in engaged. There will be an interesting parsing out of these two groups in the weeks and months to come.
  

In the end, I think that we'll have (1) some surpised investors; (2) a call for greater hedge fund transparency; and (3) a lawsuit or two due to misrepresentation of investment risks etc.