EJF is now expanding to Europe, where lenders may have to reduce their use of hybrid securities that combine debt with equity under Basel III, depending on how regulators interpret the new rules.
The firm is opening a London office to take advantage of opportunities similar to its TruPS strategy in the U.S., according to a person who asked not to be identified and wasn’t authorized to speak publicly. Friedman registered his firm in November with England’s Companies House, according to a regulatory filing.
Mortgage Bonds
Friedman isn’t the only hedge-fund manager who leveraged government policy to beat the industry last year. Firms that invest in mortgage securities, for instance, outperformed all hedge-fund strategies with an average gain of 20 percent in 2012, according to data compiled by Bloomberg.
Deepak Narula’s $1.6 billion fund Metacapital Management LP rose 39 percent through Dec. 14 by building trades around government efforts to help home owners refinance and predicting that the Fed would buy mortgage bonds to boost the U.S. economy. EJF also profited from mortgages, investors said.
More high-profile hedge fund managers have either misread political tea leaves or attacked government policy. John Paulson lost 19 percent in one of his biggest funds last year after he bet the European debt crisis would worsen, underestimating the resolve of policy makers to keep the euro currency bloc together.
SEC Probe
Paulson, who manages $19 billion, lost 51 percent in the same fund in 2011 after being too early to wager that an economic rebound would boost bank stocks.
Moore’s Bacon, whose firm oversees $13.5 billion, criticized Dodd-Frank in July as the “coup de grace” that would curtail interbank lending and hurt markets. His Moore Global Investments fund rose 8.8 percent last year, according to a person familiar with the matter.
Spokesmen for Paulson and Moore declined to comment.