Jamie Dinan's York Capital Management has begun talking to potential clients about a new distressed vehicle that will invest in whole-loan mortgages. The fund hopes to profit from the restructuring and resurgence phases of the collapse of U.S. residential real estate.
The fact that the fund will invest in whole loans (as opposed to mortgage-backed securities, like many competing products) is not the strategy's only unusual twist. York Distressed Mortgage Fund will gain exposure to whole distressed mortgage loans by investing directly in a master special servicer, Arch Bay Group. Arch is an Irvine, Calif., firm that acquires, rehabilitates and monetizes subprime and Alt-A mortgage loans. The firm is controlled by York and majority owned by York's family of hedge funds.
In a letter to investors, York said whole loans offer significant benefits over...