Peloton Partners' multistrategy fund had a terrific year in 2007, netting 27.18% in large part due to short subprime bets. By comparison, the Absolute Return Multi-Strategy Index returned 8.94%.
London-based Peloton implemented its subprime thesis within a long/short framework, largely by going long higher-rated tranches of some residential mortgage-backed securities and shorting the lower-rated slices of others via single-name credit default swaps and asset-backed security collateralized debt obligations.
Peloton Multi-Strategy Fund's biggest monthly gains came in September and October, with returns of 10.72% and 5.62%, respectively. "Since September, we've maintained our ABS risk, but we increased our exposure to