So far, it's been a middling, albeit eventful year for hedge funds.
One glaring bright spot has been funds that invest in what some might be tempted to still call toxic assets. Asset-backed securities of all kinds, especially residential mortgage-backed varieties, have been on fire as of late, giving rise to some hedge fund winners.
The Financial Times reports that Tilden Park, a billion hedge fund run by Goldman Sachs' former mortgage-backed securities employees, was up 30 per cent as of the 12-months up to end of September. Pine River, also run by a Goldman alumnus, was up over 24 percent. In addition, Obsidian, one of the flagship fixed income hedge funds run by, was up 25 percent as of the end of August.
The reality of the fixed-income market right now is that yield is increasingly hard to come by. The Fed's move to QE3 in many ways was the perfect entry point, as it highlighted the scarcity of decent yields anywhere expect in riskier asset-backed securities. One could also argue that the housing market is on the mend, which makes RMBSs even more attractive. Many securities trade at steep discounts to face value, making them all the more enticing if a bull market is to get underway. Supply is short as of now, and that may provide an added boost.
For more:
- here's the FT article
- here's an FT article on structured credit deals in general
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