FBR's Friedman Returns 29% On Regulation Bets

Jan 18 2013 | 12:40pm ET

A hedge fund helmed by a Friedman Billings Ramsey Group co-founder posted double-digit returns as banks scrambled to come into compliance with strict new regulations around the world.

Emanuel Friedman's EFJ Capital saw its Debt Opportunities Fund jump 29% last year. The $2.6 billion fund, helmed by Friedman and FBR veteran Jeffrey Hinkle, made its money on financial securities, housing and collateralized debt obligations, Bloomberg News reports. The fund seeks to identify "catalysts" that will affect the markets, including "regulatory pressure to reduce operating leverage."

Among the cornerstones of EFJ's portfolio are trust preferred securities, which took a beating when banks suspended interest payments but which have soared now that banks, under regulatory pressure, are seeking to repurchase them to boost their capital ratios.

Debt Opportunities manages the lion's share of Arlington, Va.-based EFJ's $3.1 billion in assets. And the fund has posted double-digit returns in four years out of five, adding 14% in the second half of 2008, 32% in 2009 and 20% in 2010. It was up 1.46% last year.

EFJ has leveraged its home base near Washington, D.C., to focus on the U.S. regulatory environment but plans to branch out to Europe, where some see even greater opportunities. EFJ is opening an office in London and registered in the U.K. in November.

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