LibreMax Seeks Investors For Student-Loan Fund

Dec 11 2013 | 2:23pm ET

Structured-credit hedge fund LibreMax Capital is going back to school.

The New York-based firm, led by former Deutsche Bank star mortgage trader Greg Lippmann, plans to launch a new fund to tap into the $100 billion private student-loan space.

"We believe there is a significant investment opportunity in the private student-loan market," LibreMax wrote in a presentation to potential investors last month. "These distressed assets, which have lagged the RMBS recovery, remain fundamentally undervalued."

LibreMax is betting that the worst of student-loan defaults is behind us, noting that such defaults are correlated to unemployment, which hit a five-year low last month. "Our base-case scenario assumes that 60% of the total cumulative defaults have occurred, with 40% left to default in the future," the firm wrote. "As fundamentals continue to improve, lower defaults and severities should eventually be priced in (and ultimately realized) creating a finite horizon for this trade."

The LibreMax Private Student Loan Fund will have a three-year lockup that matches its three-year lifespan: The $2.8 billion firm will spend the first year investing the fund's money and the ensuing two years reaping the rewards, Bloomberg News reports. The fund, which targets annualized returns of 15%, will use "low to moderate" leverage to invest in floating-rate student-loan bonds, it said in the November presentation. The fund's investment universe is the roughly $10 billion in private loans issued between 2005 and 2007.

It is unclear how much LibreMax hopes to raise for the fund, but given the "finite horizon," it plans to stop accepting commitments in the first quarter.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.