Gryfon Partners, a relatively new niche shop specializing in investing in higher risk opportunities within the asset-backed market, has steadily gained ground throughout the year, sources said. Spurred by buy-side interest, the next step for Gryfon will be the launch of a new fund, through which Gryfon can invest on a discretionary basis in primarily distressed cash flows.

Started last December by George Graham and Bill Grady, former managing directors and co-heads of asset-backed finance and principal finance at Salomon Smith Barney (now named Citigroup Capital Markets), the pair have reportedly taken most of this year to set up strategic partnerships with their former competitors on the Street, as well as distressed debt and loan investors, who may not be as familiar with the intricacies of securitization.

Other than confirming that it has closed transactions this year, and that there are more in the pipeline, neither Graham nor Grady wished to comment, citing the small private nature of the deals. They did confirm, however, talk of the fund, but would not elaborate further.

Gryfon Partners' role has been assuming risk that investment banks would prefer to share as well as attracting what investors called "aggressive, knowledgeable capital" seeking greater returns to invest through Gryfon. To date, Gryfon has acted as lead investor in only the most subordinated and highest yielding aspects of a transaction. Gryfon has also dabbled in speculative-grade rated subordinates as well as unsecuritized distressed assets and troubled secured loan facilities.

Gryfon's Street partners, which the two have worked with on transactions, is a who's who list of the principal finance aspect of the ABS market, although sources wanted to not be identified. Its investor partners, on the other hand, are relative unknowns to the asset-backed market, but are sophisticated and experienced in off-the-run and distressed investments.

If all goes as planned, however, Gryfon will jump into the hedge-fund arena by early next year. Propelled by interest from the investors with which it has already worked - as well as some if its Street partners - Graham and Grady are reportedly seeking outside capital to build what has been called a special opportunity fund.

The fund will allow Gryfon to invest larger amounts of capital as opportunities arise, rather than going through the process it had used thus far to raise capital. Currently, Gryfon is more of a buy-and-hold investor, more interested in yield than realizing trading profits. There is no word what the specific investment strategy of Gryfon's fund would be.

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