(Bloomberg) — Hedge funds that profited on residential mortgage debt after the financial crisis such as Pine River Capital Management and Canyon Partners are trimming their bets as prices rise.
Gorelick Brothers Capital is also exiting investments in both uninsured and government-backed home loan securities. The firm is seeking higher returns by raising a private equity fund to buy single-family rental houses, said Rael Gorelick, a co-founder of the firm.
Hedge funds that took a risk on distressed mortgage debt after the 2008 housing crash have had robust returns. Canyon Partners made $7 billion on non-agency securities in the decade before and after the financial crisis. Now these firms see dwindling opportunities as investors crowd into the market and issuance declines, pushing up prices of the non-agency debt.
“Spreads got tighter over the past few years,” said Colin Teichholtz, co-head of fixed income trading at Minnesota-based Pine River, which manages $15.5 billion. “It has gone from a great opportunity to a mediocre one.”
