BlueMountain Capital Management has launched its BlueHorizon II fund with $88 million in assets. The fund, which is focused on structured credit and correlation strategies, launched March 1 is now closed to new investment.
The firm began investing the its latest vehicle, the firm’s sixth, into the recent volatility in credit spreads and implied correlation levels, which BlueMountain believes offered excellent entry points for the core long correlation/long credit trade. More than 65% of the fund’s capital has already been deployed.
According to the firm, the fund’s 10-year lockup and monthly distributions of current cash flows provides a superior risk-to-return profile especially attractive to investors with long-term investment horizons. Investors include institutional investors such as U.S. and European pensions, endowments and banks, as well as family offices.
“We believe that there are inexpensive and compelling absolute value opportunities in the first-loss tranches of synthetic CDOs, especially given the low cost of non-recourse term leverage that comes from the senior tranches,” said Andrew Feldstein, CEO and senior portfolio manager at BlueMountain Capital Management.
The fund’s predecessor, BlueHorizon I, has already returned over 40% in cash distributions since inception in May 2005 and is up even more on a mark to market basis.
In addition to the BlueHorizon I Fund, BlueMountain launched two other investment vehicles focused on the structured credit markets in 2005 and 2006, both of which are closed to new investment. The first, the BlueMountain Correlation Relative Value Fund, has returned 56% since its launch in July 2005. The second, the BlueMountain Timberline Fund, has returned over 30% since its launch in January 2006.
BlueHorizon II employs a “buy and manage” investment strategy similar to that of BlueHorizon I, with an identical structure: long “BlueMountain” bespoke synthetic 7- and 10-year CDO equity tranches referencing a portfolio of over 500 predominantly investment grade or high-quality BB credits; selective single name hedging; 10-year lock-up; and regular monthly cash distributions to investors.
In addition, the new fund has a private equity-like fee structure in which BlueMountain earns back ended performances fees only after exceeding a 5% IRR hurdle.