Greg Lippmann became an overnight legend when he was profiled in Michael Lewis’ best-seller, The Big Short: Inside the Doomsday Machine. Lippman was a former trader at Deutsche Bank AG (NYSE:DB). Eugene Xu is another Deutsche Bank trader, who is described in the book as “Lippmann’s Chinese quant.” Together, they shorted subprime collaterlized debt obligations and other instruments, and in the process made a fortune. Deutsche Bank made a total of $5 billion from the trades as well.
After their career at Deutsch Bank AG, Xu and Lippmann co-founded a hedge fund, LibreMax Capital, LLC. The hedge fund was launched on October 1st, 2010. LibreMax Capital, LLC uses fundamental analysis to invest in various credit products, including; collaterlized debt obligations (CDOs), non agency residential mortgage backed securities (RMBS), collaterlized loan obligations (CLOs), asset backed securities, and manufactured housing.
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This is part nine of a ten-part series on some of the most important and educational literature for investors with a focus on value. Across this ten-part series, I’m taking a look at ten academic studies and research papers from some of the world’s most prominent value investors and fund managers. All of the material Read More
According to sources with direct knowledge of the matter, the hedge fund has been a phenomenal success. Total assets under management are over $1.5 billion. The flagship hedge fund manages 90% of these assets. The fund has had 18 up months and only three down months since inception, the Sharpe ratio is 1.57%. Year to date, LibreMax is up 7.22%. For the month of May, the fund was up 0.22%. The current net long exposure of the fund is slightly above 100.
The fund has been cutting back on manufactured housing angd suprime CDOS and increasing investments in CMBS.
Our sources know the allocation of the fund, but were unsure if these positions were shorts, longs or both. They guess that it is a mixture of long and shorts.
The largest position is in subprime mortgages, making up close to forty percent of the portfolio. Alt-A and Consumer ABS positions make up another 35% of the hedge fund’s portfolio. CDOs, CLOs and CMBS make up most of the rest of the portfolio. Manufactured housing is only a fraction of the fund’s investments.