‘Completely Refreshed’
Gayeski said he thinks non-agency debt is attractive because its recovery this month has trailed other risky assets such as equities, even with housing improving and defaults falling. Bonds whose returns are tied to how fast homeowners repay government-backed loans potentially may do even better in the next few months after a “shellacking” in April and May, he said.
“Looking at the overall opportunity set, we think it’s been completely refreshed,” said Gayeski, whose company has disclosed investments in Pine River’s funds.
Pine River has focused on mortgage REITs, which use borrowed money to invest in home-loan debt, amid a rout in the shares. The shares fell as the falling values of their holdings, amplified by leverage, prompted investors to sell.
REITs Drop
A Bloomberg index of the companies declined 17 percent, including reinvested dividends, since April, with American Capital Mortgage dropping 26 percent.
Two Harbors Investment Corp., a mortgage REIT overseen by Pine River and run by separate employees to the hedge fund, has lost 13.5 percent. Pine River, which also runs Silver Bay Realty Trust Corp., a single-family home rental company, doesn’t invest in its own REITs.
Kain’s American Capital Agency Corp., which Pine River also owns shares in, has fallen 30.4 percent. The firm, which only invests in government-backed securities, is less attractive than American Capital Mortgage, a REIT that also buys non-agency bonds, Teichholtz said.
He declined to comment on other individual REITs, including those it’s betting against. While it likes Kain’s firms partly because he’s “a great manager,” it also tries to targets REITs trading at larger discounts to its estimates of their current book value, Teichholtz said.
‘Pretty Attractive’