LibreMax Moves From Residential To Commercial MBS

Nov 20 2012 | 2:00pm ET

Having profited handsomely on residential mortgage bets this year, LibreMax Capital is turning its eyes towards commercial real-estate.

The New York-based hedge fund told investors in its quarterly letter that it was "excited about the opportunities" in commercial mortgage-backed securities. The firm, founder by four former Deutsche Bank traders, including Greg Lippmann, said that it had increased its holdings of CMBS, as well as collateralized loan obligations and consumer asset-backed securities. It has also reduced its exposure to subprime mortgages, which contributed mightily to its 8% quarterly gain and 17% return through September.

"As much as the [Federal Reserve's] QE3 announcement in September has demonstrated the potential to positively affect the RMBC market, residential lending remains constrained," Lippmann wrote in the Monday letter, which was reviewed by Reuters. "By contrast, quantitative easing has had, and will continue to have, a meaningful impact on commercial lending, as lower rates improve borrowers' ability to refinance across property types."

"While we still see tremendous value in RMBS, we have also been able to source several large opportunities in shorter duration non-mortgage backed bonds," he added.

Lippmann told clients that LibreMax's strong 2012 continued into October, when it returned 2.21%. He said the gain was attributable in no small part to "a large consumer ABS trade," and that the firm had cut its student loan exposure while adding credit card, CMBS and CLOs.


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