Subprime Meltdown Spells Trouble for Carrington Capital Hedge Fund

In the wake of the subprime meltdown, a few good investors can be hard to find. Carrington Capital Management, LLC, a $1 billion hedge fund, is betting against the obvious, however, and offering investors an 18 percent payout on preferred shares in an effort to raise as much as $200 million to replace bank debt.

Interestingly, Carrington - which specializes in mortgages - maintains that its relationship with traditional lenders such as Citigroup and JP Morgan Chase is â good. One might call that a statement in contradictions. Exactly how good can Carrington’s relationship with banks be when it must pay investors 18 percent interest to borrow money?

Only time will tell if more hedge funds are forced to follow the same route as Carrington Capital, as banks that have kept hedge funds in business all this time by lending them money pull back their support. For now, many hedge funds are doing whatever they can to simply weather the dark storm called the subprime fallout.