If it weren’t for bad timing, he’d have no timing at all

Some junk-bond investors — yes, that’s how we’re going to refer to the market for subprime RMBS and related securities — made a killing snapping up subprime-backed issues during the boom. James Kelsoe at Morgan Asset Management Inc. was certainly one of them, a star manager of seven funds at the company. He was also one of the fund managers that failed to see the train on the tracks:

The funds, with combined assets of $611 million, have lost an average 67 percent in the past 12 months, prompting investor lawsuits against Kelsoe and his employer, Memphis, Tennessee- based Morgan Asset Management Inc. Assets in his largest fund, Regions Morgan Keegan Select High Income, have plunged to $104 million from a peak of $1.23 billion in 2006. The funds’ meltdown followed three years in which Kelsoe outperformed peers by betting heavily on bonds with below- investment-grade ratings, trading an increased risk of default for yields higher than those on investment-grade debt. He developed what he called in a July 2007 interview an “intoxication” for securities backed by subprime mortgages. Then came the hangover.

No kidding. A fund that went from $1.23 billion to $104 million? That’s not just losing money, that’s burning it.

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