Lahde Capital Gains 1000% YTD Shooting Against Subprime Credit

by StockJockey

Monday, November 26, 2007 - 12:15 am

The gains posted by credit focused hedge funds this year have been nothing short of spectacular, with Paulson Credit Opportunities Fund up nearly 700% last we heard; funds run by Hayman Capital and others have scored big as well.

Still, the biggest winner this year might end up being an upstart from Santa Monica set up recently by Andrew Lahde,

A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.

Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.

Lahde put in stints with Kayne Anderson, Gerard Klauer Mattison, Roth Capital Partners and Dalton Investment before striking out as his own. Lahde’s fund is small and getting smaller, as he begins to return money to investors, stating “The risk/return characteristics are far less attractive than in the past.” Lahde recently launched a new strategy to bet against commercial real estate, and is planning another fund with a broad credit mandate.

It would appear many of the bets against subprime are being unwound as funds cover positions and move on. Easy for Lahde’s small fund, perhaps, but it might prove more difficult for the larger funds who need to close out their trades. Paulson and the other whales have to find willing counterparties, and closing out these positions might prove to be more difficult than putting them on. The best subprime stories might be yet to come.

Lahde is a story himself, as evidenced by his August letter to investors…

Rising tides lift all boats. Rock, paper, scissors. Tsunami crushes all (except those who bought tsunami insurance and got the hell away from the water). The tsunami is this credit contraction I have been writing about for the past year. It has affected everything. Period…

…Fellow CFAs probably remember learning about the mosaic theory, which distinguishes between plain old inside information and attaining information from different sources and combining them together to reach a conclusion that is virtually as good as ill-gotten inside information. I have so many sources of information, both the factual/statistical type and the anecdotal type. Everything I see tells me the ABX is going to fall further, as is the CMBX, the equity market, the dollar, etc…

…If God comes down and miraculously fixes everything that is going to drive us into a deep recession, we probably still would not lose money on the CMBX trades…

…There isn’t enough lipstick in the world to sell a pool of subprime loans right now…

…Will Bush help? No. His plan would help some 80,000 borrowers out of the two million subprime borrowers whose mortgage payments jump in the next two years. Try again.

Good night and good luck.

We would guesstimate Lahde is due for a payday in the neighborhood $20 million this year, perhaps more if his new funds ramp up quickly. Lahde’s take should help him ride out the coming recession, which is a “100% likelihood”, according to the outspoken manager.

1000% hedge fund wins subprime bet
Financial Times

September 27, 2007
Having a Lahde-the 410 per cent man
Financial Times
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