* Fund gained 2.2 pct in Oct, 18.5 pct YTD
* Lippmann sees opportunities in CMBS, CLOs
By Katya Wachtel
NEW YORK, Nov 19 Greg Lippmann's $2.3 billion
hedge fund LibreMax Capital, which produced double-digit gains
this year with big and successful bets on residential mortgage
securities, is looking to the commercial real estate market to
The hedge fund, which gained more than 8 percent in the
third quarter, when most funds rose about 5.8 percent, told
investors in a quarterly letter reviewed by Reuters that it was
"excited about the opportunities in the CMBS credit space" and
had increased exposure to those securities in the three months
through September 30.
Lippmann also added exposure to collateralized loan
obligations (CLOs) and consumer asset-backed-securities (ABS)
over that period, while reducing the fund's exposure to subprime
"As much as the Fed's QE3 announcement in September has
demonstrated the potential to positively affect the RMBS market,
residential lending remains constrained," Lippmann said in the
letter, dated November 19. "By contrast, quantitative easing has
had, and will continue to have, a meaningful impact on
commercial lending, as lower rates improve borrowers' ability to
refinance across property types."
In the third quarter the U.S. Federal Reserve announced a
new economic stimulus plan in which it would buy $40 billion
every month in mortgage-backed securities until the labor market
Lippmann said the fund's "largest portfolio increases
attributable to subprime" during the quarter.
Lippmann founded LibreMax with three other former colleagues
from Deutsche Bank in 2010.
"While we still see tremendous value in RMBS, we have also
been able to source several large opportunities in shorter
duration non-mortgage backed bonds," he said in the letter.
At Deutsche Bank, Lippmann was a mortgage trader who called
the U.S. housing bubble early, earning the bank billions of
dollars and himself the nick-name "Bubble Boy" among some on
Lippmann stepped down as the bank's global head of
asset-backed securities trading in April 2010 and launched his
hedge fund in October that year.
GAINS IN OCTOBER HELPED BY ABS TRADE
While subprime investments were the main contributors to
returns in the third quarter, LibreMax benefited from "a large
consumer ABS trade" in October.
The fund rose 2.21 percent last month, while the S&P500
stock index fell about 2 percent.
During October LibreMax reduced its student loan exposure
but increased credit card holdings. It also added investments in
CMBS and CLOs, it said in its October note to investors.
Since LibreMax launched, the firm has produced annualized
returns of about 12 percent.