Kevin Scherer, a former Citadel LLC senior portfolio manager, plans to start Continuum Investment Management, a hedge fund investing in residential and commercial mortgage debt and asset-backed securities.
Scherer, 46, a former managing director at Citadel, where he worked from 2008 to 2011 trading in structured credit, is starting Continuum with three former colleagues with whom he worked at Ken Griffin’s Chicago-based hedge fund, Scherer said in a telephone interview. They plan to seek about $250 million when they start the firm in January.
Scherer and his team join other funds started this year to invest in structured credit, including former Dalton Investments LLC managing directors who formed a Los Angeles-based mortgage hedge fund this month and ex-proprietary traders at Royal Bank of Canada and Bank of America Corp., who plan to start a similar strategy at New York-based TIG Advisors LLC. Other money managers that have started pools of capital in 2012 to wager on residential and commercial loan bonds and asset-backed securities include Brevan Howard Asset Management LLP, D.E. Shaw & Co. and Angelo Gordon & Co.
“We’re seeing world financial institutions delever their balance sheets -- that’s attracted a significant amount of capital,” Scherer said. “Anytime the government extracts themselves from a market, there are significant opportunities.”
Scherer will be joined by Brian McDonald, former senior portfolio manager at Citadel, who will take the same title at New York-based Continuum; Jimmy Rizos, former head of mortgage technology at Citadel, who will take a similar role at Continuum; and Stephen Cameron, former mortgage quantitative strategist at Citadel, who will be head of research and development at Continuum.
While at Citadel, Scherer managed the Single Investor Fund, which traded in residential and commercial mortgage-backed securities.
Before Citadel, Scherer co-founded Midway Group LP, the $450 million New York-based mortgage-arbitrage hedge fund, with Bob Sherak, in 2000. Scherer worked at Midway for eight years.
Continuum’s strategies will include making market-neutral investments, in which the firm tries to generate a profit without taking a view of broader market direction, and relative- value bets, which attempt to profit from price differences between assets, Scherer said.
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