Ellington Blames ‘Enormous’ Spreads For Redemption Suspension

Oct 9 2007 | 6:58am ET

Ellington Management Group has suspended redemptions from a pair of mortgage-backed securities funds while at the same time suggesting that withdrawals may be allowed “very soon.”

Old Greenwich, Conn.-based Ellington blamed the lack of trading in some subprime mortgage-backed bonds, which makes it difficult to value the funds’ assets. In a letter to investors, dated Sept. 30, CEO Michael Vranos and Vice Chairman Richard Brounstein wrote that “enormously wide spreads” have made it impossible to be “simultaneously fair to both investors redeeming from these funds and to investors remaining in these funds.”

The affected hedge funds are the New Ellington Credit Overseas and New Ellington Credit Partners funds. Combined, they have some $1.9 billion in assets.

Vranos and Brounstein sought to assure investors that Ellington is not about to go the way of fellow subprime-hit hedge funds like Basis Capital, Bear Stearns Asset Management and Sowood Capital Management.

“We emphasize we are not taking this action in response to pending redemption requests, the volume of which is unexceptional, nor are we taking this action in response to margin calls or actions by creditors, which have generally been in line with our expectations and have been easily handled by our cash positions, which remain substantial,” they wrote.

Vranos and Brounstein said they will be receiving dealer valuations of the funds’ positions as of the end of the third quarter. The letter said Ellington would distribute some of its “substantial” cash should the firm be unable to lift the redemption suspension.


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