An Australian hedge fund felled by its exposure to risky credit derivatives filed for bankruptcy protection in the United States, and liquidators on Thursday were assessing how much money, if any, would be returned to investors.

Basis Yield Alpha Fund, which manages roughly US$1 billion, has become the Asia-Pacific region's first major victim of the global credit storm.

Basis Yield, which specialized in corporate and structured credit run by Basis Capital, sought protection in a U.S. bankruptcy court in Manhattan on Wednesday.

The fund listed more than $100 million of assets and more than $100 million of liabilities in its court filing, although those amounts are based on boxes ticked in a court document, and the liquidator could not provide the exact amounts.

Basis Capital spooked Asia-Pacific markets in July when it warned that some investors may receive less than 50 cents on the dollar in two of its funds, the first evidence that fallout from the U.S. subprime mortgage meltdown was spreading to the region.

Since then, a growing number of firms in the region have rattled investors by revealing direct exposure to the subprime market or to securities that were hit hard by the ensuing turmoil that swept through global credit markets.

There is not many of those around in Asia, said a Hong Kong-based credit analyst, referring to hedge funds that invest in equity tranches of U.S. mortgage-backed securities.

It is unlikely there would be many more insolvencies. Most of the hedge funds here are Asia dedicated. If they are focused on the U.S. there is no rationale for them to be here, is there? he added.

In court papers, Basis Yield said it had begun to suffer a significant devaluation in its asset portfolio in June, following market volatility related to U.S. subprime lending defaults.

It said the devaluation led to margin calls, which it was unable to meet, and the issuance of several default notices by counterparties seeking to close out trades or seize assets.

Basis said JP Morgan Chase Bank, Goldman Sachs International, Citigroup Global Markets Ltd, Morgan Stanley, Lehman Brothers International (Europe) and Merrill Lynch International all issued default notices.

Basis Yield said it has disputed many of these notices.

At this stage we are undertaking an immediate assessment as to the financial position of the fund and likely return to investors, said Paul Billingham, national head of recovery and reorganization for liquidators Grant Thornton.

We will issue a further statement once this is clarified, he added in a statement.

Basis is among a growing number of hedge funds to have been plagued by the credit market turmoil. In July, Sowood Capital lost $1.5 billion and was forced to close down, and Wall Street's Bear Stearns has bailed out one of its funds and let another fail.

HOW MUCH IS LEFT?

Earlier in the month, Basis told investors that one of its portfolios had lost more than 80 percent in assets.

Its other master fund, the Basis Pacrim Opportunity Fund Master, is continuing to meet margin calls and is not in default.

Basis and fellow Australian-managed hedge fund Absolute Capital, along with two funds managed by Macquarie Bank Ltd, suffered heavy losses in the aftermath of the crisis in U.S. subprime market.

But industry figures said the vast majority of Australian hedge funds, which oversee assets worth about A$70 billion ($57 billion), based their investment strategy on equity plays.

We haven't seen much instability outside of fixed interest and credit markets, said Kim Ivey, Australian head of the Alternative Investment Management Association, an industry body.

All other strategies apart from fixed income and credit arbitrage have done relatively well. I haven't see any signs of problems spreading to other parts of the industry, he added.

Absolute warned earlier this week its Absolute Capital Yield Strategies Fund delivered a negative return about 8-9 percent between July and end August, but some stability was returning.

Non-bank Australian mortgage lender RAMS Home Loans Group Ltd., which failed to roll over A$6.17 billion in short-term loans in the U.S. commercial market, has also seen its share price plummet.

RAMS said it would refinance the outstanding loans with the support of Australia and overseas banks.

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