Angelo Gordon to Start Mortgage Fund for Property Recovery Bet

Angelo Gordon & Co., the $24 billion firm started by John Angelo and Michael Gordon, plans a residential and commercial mortgage fund betting on a real estate recovery, according to a presentation.

The fund, the AG Securitized Asset Recovery Fund, or STAR, will invest in a variety of residential and commercial mortgage securities and target a net internal rate of return of at least 15 percent, Angelo Gordon said in the presentation, a copy of which was obtained by Bloomberg News.

“After several years of continued declines in housing and commercial real estate pricing, Angelo Gordon is now cautiously optimistic that a nascent recovery is beginning in these markets,” the New York-based firm said in the July 26 presentation.

The firm joins hedge funds including Brevan Howard Asset Management LLP and D.E. Shaw & Co. in starting pools this year to buy securities tied to mortgages. Angelo Gordon estimates “transitional asset holders” such as governments and legacy investors have more than $120 billion in non-agency residential mortgage-backed securities, commercial mortgage-backed securities and collateralized debt obligation assets that are potentially for sale, with $80 billion of that from European banks seeking to cut leverage and adhere to new capital rules.

U.S. residential real estate prices fell in April at the slowest pace in more than a year, adding to signs the housing market is firming. U.S. commercial-property prices are recovering after falling as much as 39 percent from a 2007 peak, according to an index compiled by Moody’s Investors Service and Real Capital Analytics Inc.

Property Values

STAR will be managed by Jonathan Lieberman, Angelo Gordon’s head of residential and consumer loans, Andrew Solomon, head of commercial real estate debt and portfolio manager, and a team of 14 others, according to the presentation, which did not say how much the firm has raised in assets or commitments or when the strategy starts trading.

Garrett Walls, a managing director at Angelo Gordon, didn’t respond to a telephone call seeking comment.

Returns may exceed 25 percent in case of a real estate recovery, or range in the single digits in a “downside” case. The firm’s “stress” case includes a slow rebound where U.S. unemployment remains above 8 percent for a long period and property prices fall 10 percent to 20 percent, according to the presentation.

PPIP Manager

Angelo Gordon manages several funds and separate accounts that already invest in commercial and residential mortgage securities, the firm said in the presentation. Angelo Gordon was among nine managers selected in 2009 to take part in the U.S. government’s Public-Private Investment Partnership to spur the purchase of mortgage-backed securities from banks.

The AG GECC Public-Private Investment Fund LP, which invests in commercial and residential mortgage-backed securities originally rated AAA and originated before 2009, is up an estimated 18 percent this year through June after falling 9.3 percent last year, gaining 48 percent in 2010 and declining 2.3 percent in 2009, according to the presentation.

AG Mortgage Value Partners LP, which invests in residential mortgage-backed securities, asset-backed securities, special situations and secured asset-based financing, rose an estimated 8.4 percent this year, 6.4 percent in 2011, 24 percent in 2010 and 30 percent in 2009. AG MVP Plus LP, which buys similar assets, rose 12 percent this year, 15 percent last year, 19 percent in 2010 and 25 percent in 2009.

AG Commercial Real Estate Debt Fund LP, which invests in commercial mortgage-backed securities and other real estate debt originally rated investment grade, is up 3 percent this year after falling 1.9 percent last year, rising 90 percent in 2010, 80 percent in 2009 and dropping 77 percent in 2008. AG Real Estate Debt Investment Fund LP, which allocates to similar assets, climbed 12 percent this year and fell 3.8 percent in 2011.

Angelo Gordon, which manages fixed income, real estate, buyout and hedge funds, was founded in 1988 by Chief Executive Officer Angelo and Chief Investment Officer Gordon.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE