Hedge fund managers live for inefficient markets. They are finding them in fixed income securities such as asset-backed securities, European sovereign debt (on the short side) and structured finance vehicles of European banks. These securities are very complex, opaque and illiquid. Hedge funds are looking to capitalize on sellers trying to unload them and buy them at a discount.
To handle these assets, managers are extending their lockup period to 2 to 5 years. Fortress Investment Group is looking through busted structured finance securities. It is where the best opportunities are but, since they are very illiquid, managers have to be include this risk in their pricing. Blue Mountain Capital Management is researching subprime auto loans, non-agency option arms of residential mortgage-backed securities, relative value trades in dividend swaps and structured finance assets being unloaded by banks to meet regulatory requirements.
Other hedge funds in this space are Prosiris Capital Management (with Investcorp International), Bayview Asset Management (with Blackstone Alternative Asset Management) and Corbin Capital.
The source for this article can be found here.
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