WSJ: Credit Crunch Rocks Bain, as Funds Fall Up to 50%

"Some high-profile Bain Capital credit-investment funds are choking on losses of as much as 50%, said people familiar with the matter, the latest revelation in a day of shake-ups across the hedge-fund business.

The private-equity firm's credit affiliate, Sankaty Advisors LLC, has lost between 40% and 50% across two funds that bought up highly secured corporate loans, these people said. The two vehicles had roughly $4 billion in assets just a few weeks ago, and used a relatively low amount of borrowed money to fund their investments.

Steep losses have also hit London hedge fund Centaurus Capital LP, which Wednesday offered its investors a chance to cut their fees. And, at Tudor Investment Corp., one of the oldest and best-regarded hedge funds, fund manager James Pallotta finalized a plan to run his own firm separate from longtime colleague Paul Tudor Jones.

The developments at Bain, meanwhile, are a blow to a group of top-tier institutions that long have been investors with the Boston-based firm. Harvard University, the Massachusetts Institute of Technology and the University of Notre Dame all have some money invested in Bain's loss-making credit funds. Two of the problem funds include Sankaty's Special Situations and Prospect Harbor.

As market conditions have deteriorated, Sankaty has had to seek new, but more expensive, financing for some of its key borrowing facilities. It recently obtained longer-dated terms to stave off margin calls, which typically kick in if asset values fall below a certain price. The funds have not seen significant redemptions, according to a spokesman."