BlueMountain Back Again With New Credit Hedge Fund

Oct 15 2007 | 11:45am ET

BlueMountain Capital Management is back in the market with another credit-focused hedge fund. Two months after the debut of its Defensive Credit Fund, the $4.5 billion New York-based hedge fund shop this month launched the Correlation Relative Value II Fund with $80 million in investor capital and immediately closed it to new investments. 

The fund, designed to capitalize on opportunities in structured corporate credit markets, is BlueMountain’s third long-term closed-end fund devoted to credit correlation trading, following the Timberline fund (up 35% year-to-date and 65% since inception) and CRV I (up 34% annualized over its 20-month life).

“In our view, the credit markets today present the best relative value opportunities since the spring and summer of 2005,” said Bryce Markus, portfolio manager and managing principal. “We see excellent value in the synthetic CDO market, particularly in light of the recent volatility in senior and super-senior tranche pricing and the rolling uncertainty around rating and regulatory action in the structured credit space generally.”
CRV II features a six-and-a-half year lock-up, but will unwind its positions after the “trading opportunities presented by the current market volatility have ebbed, as it did with CRV I,” according to the firm. CRV I, launched during the height of the 2005 dislocation in the credit correlation market, also had the same lockup period, but unwounded its positions and returned profits and capital to its investors after just 20 months, delivering 56% returns over the period.

“Today, we see parallels to the correlation dislocation of 2005, with the added advantage that the correlation markets are not the center of the storm, allowing us to scoop up more opportunities as attention is focused elsewhere,” said Stephen Siderow, president.

“Moreover, the tranche markets are larger and more liquid today with more instruments and tenors to trade and find relative value opportunities. We are confident what that with our institutional scale and disciplined investment processes, we’ll be able to capitalize on the current market volatility and again deliver superior risk adjusted returns to our investors.”

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