Stamford, Conn.-based Structured Portfolio Management has launched a hedge fund to take advantage of significant slowdowns in the residential mortgage prepayment market.
The SPM Directional Mortgage Prepayment Strategy fund will invest in various types of interest-only mortgage backed securities.
“We believe that as a knock-on consequence of housing prices dropping and the imposition of extra fees and more constrained underwritings of mortgages in the prime mortgage sector, that the response on average of mortgagors to a rate incentive for refinancing is going to be substantially lower than it has been in the past,” Don Brownstein, SPM’s CEO and chief investment officer, told FINalternatives.
“So we think there is money to be made by effectively taking positions which reflect that view about prepayments.”
SPM currently manages four funds with long investment horizons as well as three directional funds that are designed to exploit short to mid-term market opportunities. The firm also runs a Composite Fund that allocates across all of its funds’ strategies. All told, SPM currently manages approximately $1.2 billion in investor assets.