| LibreMax Capital’s Greg Lippmann; Photo: (Bloomberg) |
Greg Lippmann’s LibreMax Capital is turning out to be one of the more successful recent hedge fund start-ups, having reached $2.3 billion in assets in just two years since its launch. That’s no easy feat in an environment where startups still struggle to raise money. It helps that the New York City-based hedge fund firm, co-founded by chief investment officer Lippmann and president Fred Brettschneider, have produced strong performance. The credit-focused firm’s two main funds, LibreMax Partners L.P. and LibreMax Offshore Partners, Ltd. were up more than 16 percent through the third quarter of this year, including an 8 percent gain in the third quarter alone. And since their October 1, 2010 inception, the funds are up more than 23 percent.
Lippman’s reputation as a subprime star undoubtedly helped as well, however. Lippmann and his team at Deutsche Bank are credited with creating the credit default swaps that enabled investors to bet against sub-prime mortgages in 2007, making nearly $2 billion for the German bank. He was reportedly upset with his $50 million bonus at the time.
LibreMax told clients in its third-quarter letter, dated November 19, that it benefited in the third quarter as pricing for securitized products gained strength and synthetic residential mortgage-backed securities outperformed most markets.
The firm pointed out that the broader markets have been rallying since June after the onset of the so-called Outright Monetary Transactions program by the European Central Bank — Europe’s desperate plan to save the Euro by buying sovereign debt — and the third round of quantitative easing by the U.S. Federal Reserve Bank.
As it looked out to the end of the year, LibreMax said it increased its exposure throughout the third quarter amid a broader market rally. However, it stressed in the letter that it positioned the portfolio conservatively because of several concerns, including the U.S. presidential election, the fiscal cliff, fears of a renewal of tension in the Eurozone, and the uncertain effects of Superstorm Sandy.
“We remain bullish on the relative prospects for securitized products,” Lippmann wrote in the letter. “After multiple years of underperformance, we believe the outperformance of housing, compared to other economic data in 2012, heralds the beginning of a multi-year relative trend regardless of the strength of the U.S. economy.”
He also said in the letter he sees potential strength in residential MBS as well as shorter-duration, non-mortgage backed bonds.
LibreMax is not alone. In a Bloomberg TV interview on Tuesday, Bruce Richards, co-founder of Marathon Asset Management, singled out structured credit, illiquid high yield assets such as aircraft lease obligations, and the subprime market as especially attractive for investment these days.
Lippmann and Brettschneider have spent most of their careers working at the same firms. Prior to launching LibreMax, they each spent 10 years at Deutsche Bank. Before that, both men started their careers at Credit Suisse.
Lippmann has spent his entire 22- year career on Wall Street trading asset-backed securities — mostly mortgages, both commercial and residential. At Deutsche Bank, Lippman was most recently head of all non-agency residential mortgage-backed securities, asset-backed securities and collateralized debt obligation trading globally. Before that, he spent nine years at Credit Suisse.
Brettschneider was head of global markets for the Americas at Deutsche Bank, where he was responsible for managing the debt and equity businesses in the Americas and supervising a staff of over 2,000 people. He joined Deutsche Bank in 2000 as the head of ABS trading and syndicate. Prior to Deutsche Bank, Brettschneider was global head of ABS trading and the co-head of MBS trading at Credit Suisse.
