A California firm has launched a trio of hedge funds poised to cash in on the burst of the real-estate bubble.
Lahde Capital, based in Santa Monica, has recently unveiled U.S. Residential Real Estate Hedge I, II and V. All three funds utilize the same strategy—shorting the riskiest tranches of sub-prime mortgage securitizations—but with differing levels of leverage, topping out at five times leverage.
“The conditions that led to the mass proliferation of sub-prime mortgage underwriting have all reversed,” explains fund manager Andrew Lahde. “We are now in an environment where it is virtually impossible to profitably underwrite sub-prime mortgages.”
Increased delinquencies and foreclosures will negatively impact the lowest-rated tranches of mortgage-backed securities. “The riskiest pieces of these securitizations can be wiped out entirely in a situation that is even moderately different from the goldilocks environment we have lived in for the past six years,” Lahde said.
The funds charge a 1% management and 20% performance fee, with a $250,000 minimum investment requirement.