Kick-starting Thursday’s market meltdown, BNP Paribas shocked markets by announcing the suspension of redemptions on three investment funds with assets of about €1.6bn. Goldman Sachs and Renaissance were also affected as performance at quantitative hedge funds reflected volatile markets. The French bank’s explanation, says Lex, “is becoming all too familiar” – the panic over subprime mortgages has made the pricing of these, and related securities, next to impossible. In this situation, a fire sale of the fund’s underlying assets would be foolish, but preventing withdrawals is a separate issue to pricing, Lex warns. Of course, inputting a higher default rate would lead to lower valuations, but for now, denial “is in everyone’s interest”.
