NEW YORK (Reuters) - Hedge fund T2 Partners LLC on Monday for the first time was buying distressed U.S. mortgage securities on bets that losses on underlying loans will fall far short of expectations, founder Whitney Tilson said.
“For the first time in our 10-year history we are buying distressed debt, and we are selling equities to do it, Tilson said at the Reuters Investment Outlook Summit in New York.
The $100 million fund put between 10 percent and 25 percent of its capital in the mortgage securities, which include pools of subprime home loans that triggered the global financial crisis, he said.
For T2, traditionally a stock investor, mortgage debt has surfaced as one of the best investment areas in years since forced selling has pushed prices below levels that signal even catastrophic losses, he said. Many of the bonds that were once rated “AAA” are trading at 30 cents to 40 cents on the dollar, and offer “enormous” returns on capital, he said…
They are “pools of the most toxic mortgages ever written,” he said. “The characteristics of these would really make your jaw hit the floor.”
You can make your own judgement of the move, but we’d note that Tilson did have some prescient views on the housing bubble back in March…
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