Stamford, Connecticut-based Structured Portfolio Management has announced the launch of a hedge fund designed to take advantage of significant slowdowns in the residential mortgage prepaym
Stamford, Connecticut-based Structured Portfolio Management has announced the launch of a hedge fund designed to take advantage of significant slowdowns in the residential mortgage prepayment market.
The SPM Directional Mortgage Prepayment Strategy Fund seeks to take advantage of current conditions through investments in various types of interest-only mortgage-backed securities from the conforming sector, that is, backed by Fannie Mae and Freddie Mac mortgage collateral.
The primary concern for investors in interest-only mortgage securities is prepayment risk, but Structured Portfolio Management argues that in the current environment, this risk is asymmetric.
‘We believe there is an excellent opportunity to exploit a significant slowdown in prepayments, which is being caused by a number of economic factors related to the weak housing market and the credit crisis,’ says Don Brownstein, the firm’s chief executive and chief investment officer. ‘The negative housing appreciation rates combined with reduced liquidity make the refinancing of mortgages at lower rates very difficult.’
The fund, which was launched last month, is currently open to new investment. Consistent with the firm’s overall risk management philosophy, the SPM Directional Mortgage Prepayment Fund will use limited leverage and seek to control the specific risks to which it is exposed.
Founded by Brownstein in 1997, Structured Portfolio Management focuses on mortgage-backed securities strategies. It currently manages four funds with long investment horizons as well as three directional funds that aim to exploit short- to mid-term market opportunities and a Composite Fund that allocates across all of the strategies. The firm currently manages some USD1.2bn in investor assets.
