Strategic Asset Funding Corp., a Los Angeles-based financial advisor, will utilize securitization to leverage a new hedge fund the company is launching, following the lead of other leveraged/derivative houses eyeing the collateralized-bond obligation market as a way to shore up capital and protect themselves from the "hot-money" volatility recently experienced in hedge funds derivatives market, according to a source familiar with the situation.
"Our issuance calendar depends on the returns we're trying to achieve," the source said, adding that the fund would be at least $100 million and looked to launch next year. "Right now we're doing a lot of analysis and putting things together."
Strategic Asset follows in the footsteps of Ellington Capital Management, MKP Capital Management, Beacon Hill Asset Management, Grosvenor Capital Management and The Clinton Group, which are part of a group of hedge funds that have announced plans to become regular issuers of CBOs in order to protect from the risks associated with hedge-fund management.
After the blowup of Long Term Capital Management earlier this year, several hedge fund managers felt the best way to dress their wounds would be to buy mortgage collateral, package it into a CBO and sell it.
That strategy effectively shores up funding for the companies for up to five years and protects them from hot-capital syndrome, in which people suddenly pull their investments out of the fund without warning. The CBO sales would also help reduce the funds reliance on Wall Street lending.
Strategic Asset works as an advisor on dispositions of assets to either new issuers or large, established accounts. The source would not comment on what company Strategic Asset was advising, or if anyone else was involved in the program.