Paulson Vet Pellgrini’s Shorting Mortgages Again

Dec 4 2009 | 12:21pm ET

When former Paulson & Co. fund manager Paolo Pellegrini finally opens his new hedge fund to outside investors, they’ll be getting a dose of the strategy that made Pellegrini’s—and Paulson’s—name.

Pellegrini’s new PSQR plans to short U.S. mortgage-backed securities. In 2007, Pellegrini and John Paulson, the co-managers of Paulson’s Credit Opportunity funds, made $15 billion shorting MBS prior to and during the subprime mortgage crisis.

Pellegrini is currently fundraising for his new venture, which he launched in April 2008 with $100 million of his own money. So far, he’s done quite well for himself, returning in excess of 175%. Net of fees, that translates to a 130.38% return since inception. The fund was up 1.08% in October and is up 64.39% on the year.

According to marketing documents, Pellegrini “remains fundamentally skeptical about the ability of the U.S. dollar and of U.S. dollar-denominated fixed-income assets to retain their value over time.” So it’s shorting both MBS and the dollar.

“We can’t predict which will go down, or which will go down more, but in combination we believe they will go down a lot.”

PSQR will charge 2% for management and 20% for performance. It features monthly liquidity with 45 days notice and no lock-ups or gates. The minimum investment is $1 million.

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