Australian hedge fund goes under

No one knows the extent of the credit woes yet

An Australian hedge fund has filed for bankruptcy protection in New York after becoming the latest casualty of the upheaval in the world credit markets.

The $100m (£50m) Basis Yield Alpha Fund had ties to high-risk US mortgages, which have been hit by rising defaults.

As the crisis in the US sub-prime market spread, the value of its underlying investments fell.

Unable to meet calls from its creditors to pay back loans, the fund was served with default notices.

The notices would have allowed its creditors - which include JP Morgan Chase, Goldman Sachs and Citigroup Global Markets - to seize assets or close out trades.

The Cayman Islands-registered fund is a division of Australia's Basis Capital.

Repercussions

Hedge funds typically borrow money to invest, but these loans have strict terms attached.

The debt must not rise above a specified proportion of the total fund and if this was to happen, the hedge fund must sell some of their holdings to pay the banks back.

In its court filing, the fund listed more than £100m of assets and $100m of liabilities, but it is unclear whether these amounts are accurate and how much, if any, its investors will see returned to them.

The repercussions of the sub-prime meltdown has reverberated in the world's biggest banks, which had been indirectly profiting from the booming US housing sector for years.