Aug. 16 (Bloomberg) -- HFA Holdings Ltd., an Australian hedge fund manager that manages more than $3 billion, said its funds have benefited from the turmoil in the U.S. subprime mortgage market.

HFA anticipated the crisis in U.S. subprime mortgage securities as long as two years ago and short-sold the securities, it said in a statement today. Short sellers are investors who borrow securities and then sell in the hope they can buy them back cheaper, pocketing the proceeds.

The firm's gains contrast with Bear Stearns Cos., which was forced to liquidate hedge funds. Sydney-based hedge funds Basis Capital Funds Management Ltd., Absolute Capital Group Ltd. and Mariner Bridge Investments Ltd., have also been hurt by the subprime fallout.

``HFA got it right and now they're reaping the reward, while others were not so lucky,'' said Karl Siegling, who manages about $86 million at Cadence Capital, a Sydney-based hedge fund manager. ``It's not all bad news for hedge funds because they can actually take advantage of bad markets.''

HFA's shares rose 19 cents, or 12 percent, to A$1.84 at the close in Sydney after earlier gaining 18 percent.

The company delayed an agreement to buy U.S. fund manager Lighthouse Partners for A$707 million ($572 million) amid the turmoil in global markets. The shares have slumped 43 percent since their A$3 high on July 25.

Increasing Assets

The takeover, which would increase HFA's assets under management to about $8 billion and create a company with eight offices in Australia, Hong Kong, the U.K. and the U.S., will proceed when the shares recover, HFA said in a separate statement today.

``It's a sensible thing to do given how far the shares have dropped since the credit crisis began,'' said Angus Gluskie, who helps manage the equivalent of about $380 million, including HFA shares, at White Funds Management in Sydney.

HFA said its investments in collateralized debt obligations and residential mortgage backed securities resulted in a net short position.

``Our investors will be well rewarded by their allocations to HFA's absolute return funds over the coming 12 months,'' the company said in a statement to the stocks exchange.

Rams Slumps

Rams Home Loans Group Ltd., the first Australian home-loan company to say profit may be hurt by the deepening credit crisis, today said it's been unable to refinance A$6.17 billion of short-term U.S. loans because of a ``lack of market liquidity'' caused by the global credit rout. Rams slumped 36 percent to 87 cents. It's lost about half its market value this week.

Rams's statement follows bankruptcy filings in the U.S. by American Home Mortgage Investment Corp. and New Century Financial Corp.

Basis Capital, which managed about A$1 billion in March, yesterday told investors losses at one of its hedge funds may exceed 80 percent. The losses have worsened since a month ago, when it said the fund may decline more than 50 percent.

Absolute Capital has also been caught in the rout and halted redemptions from two funds to avoid a sale of assets at distressed prices. Mariner Bridge, which manages A$302 million, last month cut the value of its A$36 million in U.S. residential mortgage-backed securities to 26 percent below their face value.

Bear Stearns

Bear Stearns, the fifth-largest U.S. securities firm, said last month that investors in its two failed hedge funds would get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages.

The hedge funds ran into trouble by investing in the unrated, riskiest portions of collateralized debt obligations and then leveraging the investment. The portions, also known by bankers as ``toxic waste,'' are first in line for any losses when borrowers fall short on mortgage payments.

While sales of CDOs -- used to pool bonds, loans and their derivatives into new debt -- rose fivefold to $503 billion last year from 2003, investor appetite for the securities is now waning.

Delinquencies on U.S. subprime mortgages, or home loans to people with poor credit, surged to a 10-year high this year after borrowing costs rose.

The losses triggered a sell-off across credit markets because of concerns that CDO declines would mean losses for holders of even the least risky debt and that fewer sales of new CDOs would reduce demand for bonds and loans.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: August 16, 2007 02:55 EDT