MD Sass Launches Waterfall Victoria Fund

Jul 10 2007 | 11:24am ET

MD Sass has launched the Waterfall Victoria Fund, a hedge fund investing in less-liquid asset-backed securities. The firm has commitments from its existing institutional investors of $200 million for the new offering.

The $12 billion firm currently manages the two-year old Waterfall Eden Fund, which specializes in high-yield and distressed ABS. Late last year, MD Sass decided to create a less-liquid version of Waterfall Eden in order to take advantage of a potentially large supply of less-liquid ABS available in the marketplace, “as holders ran into some difficulty because of being too leveraged or having redemptions in their funds due to poor performance,” according to a source familiar with the fund.

“They were able to raise more money than they could reasonably put to work in the current environment, but they believe they’ll have plenty of opportunities,” the source said. “Investors are going in with the view that they want to be in for the long run. Obviously the problems that Bear has had are not alone because there is a fair amount of distressed selling out there.”

Waterfall Eden currently manages close to $1 billion and has generated “very enviable returns with a very modest level of leverage,” according to the source. Jack Ross and Tom Capasse, portfolio managers for Waterfall Eden, also serve as managers for the new offering.

The new fund charges 2% for management and 20% for performance, and has a three-year lockup period. Its minimum investment requirement is $1 million, but its investors are coming in with “substantially” more than that, the source says.

MD Sass has also recently seeded a commodities-based private equity fund investing in publicly-held small mining companies with substantial natural resource reserves in metals and coal. The Taurus Fund, which is looking to raise $300 million, held its first closing this month on $50 million, and anticipates holding another close later on this summer, according to the source. 

Australia-based Taurus is focusing its investments in its home country as well as New Zealand, Africa, Asia, Canada and Latin America. “They need capital to get the reserves into production so MD Sass is providing them with the capital and arrange for debt financing,” said the source.

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