The Brevan Howard Credit Value Master Fund invests in mortgage-backed securities, collateralized debt obligations linked to real-estate and illiquid securities trading below their “intrinsic value,” the London-based firm wrote in a marketing document obtained by Bloomberg News.
The hedge fund has a $20 million investment minimum. Money will be locked up for as long as two years depending on the share class clients choose, according to the document, a copy of which was obtained by Bloomberg News.
Brevan Howard, which has $36 billion under management, is among a growing list of firms forming hedge funds to invest in assets that plunged last year. CQS U.K. LLP started a hedge fund in February to buy less liquid securities after some categories of U.S. mortgage bonds that lack government backing fell more than 30 percent in 2011.
In the note sent to potential investors, Brevan Howard said prices of mortgage-backed securities and other “out-of-favor” assets plunged so sharply last year that they should lead to “excellent opportunities” in 2012. European banks trying to reduce leverage and adhere to new capital rules will also create buying opportunities through asset sales, the firm said.
So-called non-agency mortgage securities gained 10.5 percent on average in the first five months of 2012 after losing 6.9 percent last year, according to Amherst Securities Group LP. That debt lacks guarantees from government-supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae. U.S. speculative-grade company bonds, coming off gains of 4.4 percent in 2011, returned about 4.9 percent through May, Bank of America Merrill Lynch index data show.
Motivated sellers of asset-backed securities will include U.S. banks shutting down proprietary-trading desks and money managers with “strong memories” of unexpected price declines in 2007, 2008 and 2011, according to Brevan Howard.
The fund started in March and is managed by David Warren, the former head of structured credit at Morgan Stanley who already oversees the Brevan Howard Credit Catalysts fund. The Catalysts fund gained 7 percent in the first five months of this year, according to a person briefed on the pool’s performance who asked not to be identified because the firm is private. The fund advanced 1 percent in 2011, according to a note released in January by a publicly traded company that raises money for Brevan Howard. Officials at the fund declined to comment.
Alan Howard founded Brevan Howard in 2002 with four other traders from Credit Suisse Group AG. The firm’s biggest fund hasn’t posted an annual loss since its inception in April 2003.
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