Josh Birnbaum’s Tilden Park was one of the top winners among the mortgage focused hedge funds in 2012. With a +41% return, Birnbaum knocked out all competition in other strategies as well. However the MBS/ABS strategy fizzled out in 2013 as tapering fears strengthened and then materialized towards the end of the year. The star-studded record was slashed to nearly half as Tilden Park reported a +20% return through the end of November 2013. According to a monthly stat-sheet seen by ValueWalk, the fund rose +0.9% in November.

Mortgage Hedge Funds

Mortgage hedge funds Tilden Park, Pine River shine less in 2013

In November, Tilden Park was particularly profitable in the RMBS strategy where a $4.5 billion settlement resolved the liabilities that J.P.Morgan had, thus resulting in a rally in the non-agency RMBS positions. The fund also profited from agency MBS positions but lost in portfolio hedges. Tilden Park Offshore Fund manages $1.38 billion.

eVestment does not tell a great story regarding MBS strategies. Their November asset flow report notes that,

Data on MBS strategies has fluctuated over the last several months as additional funds report, however we see a trend of negative investor sentiment toward the group. In the last five months, there has been one recorded month of net positive flows despite positive returns.

The report said that the strategy could be shaking off losses from the difficult period it suffered in May/June and did not necessarily indicate a longer term trend. Over the ten months of 2013, MBS funds lost $2.58 billion in assets whereas total assets of the strategy stood at $83 billion.

As yields on the USTs rose in the year, maintaining and profiting from mortgage backed holdings became much harder. The strategy took a major hit in June when global markets scaled back on hints of taper. Another bigwig of the mortgage industry, Steve Kuhn, bagged a +35% return in Pine River Fixed Income Fund and +28% return in Pine River Liquid Mortgage fund. However 2013 told a a very different story, Pine River Fixed Income, the flagship $3.5 billion fund, had managed only a +9% return YTD through December 20 whereas the Liquid Mortgage Fund was close to ending the year with a +0.37% return only.

Candlewood Investment Group runs several distressed asset portfolios, the Candlewood Structured Credit Fund was up 11.4% YTD through November, after rising +20% in 2012.

Smaller mortgage hedge funds still doing better

A winner among small hedge funds in 2012, Chenavari Toro Capital 1A is perhaps the only fund which was set to end the year with a stellar return. The fund was up 29.5% as of Nov 2013 and recorded a gain of 32.4% in 2012. Chris Hentemann’s 400 Capital Credit Opportunities Fund was up 14% through the end of November, far below the +34% return the fund had recorded in 2012.

Halcyon Offshore Asset Backed Value Fund was up 6.8% for the year through Dec 16. The fund manages $2.5 billion and had gained +16% in 2012. CQS ABS Feeder Fund had gained 9.3% through the end of November, the fund was up 16.85% in 2012.

MKP Credit Offshore Fund recorded a return of 10.8% through the end of November last year, after rising 19.6% in 2012. This one manages $1.5 billion.

The returns mentioned in this post are from HSBC Hedge Weekly, unless mentioned otherwise.