Farsighted players predicted the current housing malaise and are reaping the benefits.
By Carolyn Sargent
Last August, when friends and fellow hedge fund managers Kyle Bass and Mark Hart began marketing a special-purpose fund dedicated to shorting the market for high-risk mortgages, it required lots of explanation. Housing prices were still on an upswing, defaults were only starting to pick up and the strategy itself was a bit exotic.
And yet, says Hart, the founder of Fort Worth, Texas-based Corriente Advisors, "We saw the risk/reward tradeoff as extremely compelling because the cost of insurance was as low as it had ever been, and the fundamentals were clearly deteriorating."
The pair's Subprime Credit Strategies portfolio - managed jointly by Hart and Bass of Dallas-based Hayman Capital Partners - began trading in mid-September with a bit more than $100 million. While the market barely moved in last year's fourth quarter, by...