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.