BlueMountain Capital Management launches USD80m credit correlation fund
BlueMountain Capital Management has launched a new hedge fund, the Correlation Relative Value II Fund, designed to capitalise on opportunities in structured corporate credit markets. The fund is BlueMountain's third long-term closed-ended fund devoted to credit correlation trading, following the Timberline fund (up 35 per cent so far in 20067 and 65 per cent since launch) and CRV I (up 34 per cent annualised over its 20-month life).
BlueMountain is also a large and active participant in the correlation markets through its open hedge funds, including the flagship Credit Alternatives Fund and BlueCorr Fund. Correlation Relative Value II was launched with USD80m in investor capital and immediately closed to new investment.
'In our view, the credit markets today present the best relative value opportunities since the spring and summer of 2005,' says portfolio manager and managing principal Bryce Markus. 'We see excellent value in the synthetic CDO market, particularly in light of the recent volatility in senior and super senior tranche pricing and the rolling uncertainty around rating and regulatory action in structured credit generally.'
The fund features a six-and-a-half-year lock-up to help manage co-investor risk and achieve superior dealer margin terms, but BlueMountain plans to unwind the fund once the trading opportunities presented by the current market volatility have ebbed, as it did with CRV I.
Launched into the teeth of the 2005 dislocation in the credit correlation market, this fund also had a six-and-a-half-year lock-up, but BlueMountain unwound the vehicle and returned profits and capital to its investors after just 20 months, delivering 56 per cent returns over the total period.
Investors in CRV II include several large institutions and high net worth individuals as well as BlueMountain principals and directors. As with BlueMountain's other vehicles employing long-term lockups, the fund seeks to align investor and manager incentives. Internal rate of return-linked performance fees are based on cash out to investors over a 5 per cent hurdle, starting at 20 per cent and graduating up to 30 per cent for a portion of profits above a 15 per cent IRR.
'Today we see parallels to the correlation dislocation of 2005, with the added advantage that the correlation markets are not the centre of the storm, allowing us to scoop up more opportunities as attention is focused elsewhere,' says president Stephen Siderow.
'The tranche markets are larger and more liquid today with more instruments and tenors to trade and find relative value opportunities. We are confident what that with our institutional scale and disciplined investment processes, we'll be able to capitalise on the current market volatility and deliver superior risk-adjusted returns to our investors.'
BlueMountain Capital Management trades and invests in relative value strategies across the global credit and equity derivatives markets. Its investment philosophy is based on deep fundamental credit research, rigorous quantitative analysis, and respect for and knowledge of market technicals.
BlueMountain currently has more than USD4.5bn in client assets under management in its hedge funds and also is the manager of three collaterised loan obligations with a further USD1.5bn in assets. The firm, which has offices in New York and London, was founded in 2003 by chief executive Andrew Feldstein, Siderow and co-head of credit research Gery Sampere.
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