SkyBridge Earning 38 Percent On Mortgage Bets



In the non-government-backed market, "if you're expecting to make 15 percent to 20 percent, that's not going to happen, it's just not mathematically possible" anymore, though above-average returns are still achievable, said Gayeski.

The firm sees a strengthening economy creating opportunities in equity investing, especially for managers pursuing strategies involving "hard corporate catalysts" such as mergers, spin-offs and asset sales.

SkyBridge directed $490 million from its main fund to John Paulson's funds in the six months ended Sept. 30, regulatory filings show. It cut holdings in the Pine River Fixed Income Fund, JLP Credit Opportunity Cayman Fund Ltd. and pulled all $60 million it had in the SPM Core Offshore Fund Ltd., which invests in mortgages.

Over the past three years, Pine River Capital Management LP has diversified beyond the residential mortgage-bond specialty that had propelled much of its growth since the financial crisis, said Colin Teichholtz, Pine River's co-head of fixed- income trading.

"That's not to say there's not a great opportunity set in mortgages," he said. "It's just not a complete capital vacuum to the same degree that it was going back a few years."

Pine River also sees non-agency returns being limited by higher prices and slower gains in home values, and the Fed's retreat from the agency market potentially creating dislocations, he said. The firm's $3.4 billion fixed-income fund gained about 10 percent last year, an investor notice shows.

Targeted Markets

Even if U.S. property appreciation slows or reverses, investors such as Ellington that are analyzing specific markets can benefit as areas such as some Florida markets catch up after lagging behind, chief executive officer Michael Vranos said.

"We don't think about national home prices: We think about hundreds of separate markets and economies," said Vranos. His Old Greenwich, Conn.-based company's flagship Credit Opportunities Fund and similar accounts, with $2.9 billion of assets, returned about 15.5 percent in 2013, according to a person familiar with the results, who asked not to be named because the returns are private.

Many of the mortgage hedge funds started up during or after the crisis are diversifying beyond beaten-down residential securities as they mature. Seer Capital, which oversees $2.2 billion, last year increased its investments in debt such as European small-business-loan bonds, commercial mortgage-backed securities and collateralized loan obligations and began buying soured mortgages not packaged into bonds.

"The supply and demand dynamic has shifted in their favor" relative to securities backed by the debt, said CEO Philip Weingord.

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