Securitization professionals Tom Capasse and Jack Ross entered into a partnership with long-time asset manager M.D. Sass to start a new distressed ABS opportunity hedge fund.

Capasse and Ross, who launched their investment company, Waterfall Asset Management in January, have plans to launch the new hedge fund, called Waterfall Eden Fund, before the end of the month. Specific details, such as how much start-up capital Waterfall plans to raise, were not immediately available.

With financial support from M.D. Sass, Waterfall's investment opportunities will target a variety of sectors including residential mortgages and home equity ABS, manufactured housing loans, auto and vehicle loans, credit cards, aircraft and equipment leases and CDOs, among others. Additionally, the company will maintain a secondary focus on the distressed secondary sector, as well as below investment-grade securities in the primary market, added Ross. Waterfall will control risk with a duration neutral approach hedged using interest rate swaps, credit default swaps, and other derivatives, said Capasse.

Capasse assures the market that although there are a number of players entering the distressed structured finance securities area, Waterfall will be competitive. "Because of our experience, we have a broad background across all asset classes, so we'll tend to look at deals that make sense and do a lot of fundamental credit analysis rather than a singular focus on MBS or CDOs only," said Capasse. "It gives us a broader swath of investments to invest in."

In addition to receiving financial support, infrastructure, and risk management from M.D. Sass, Waterfall will receive office space, as Waterfall's current workspace is located in M.D. Sass's New York offices. Waterfall has also added an analyst to its staff and as the company's asset base grows, Waterfall will look to expand its workforce.

M.D. Sass, known as one of the first corporate distressed managers, has an established history in seating alternative fixed-income strategies. In 1989 the firm set up one of the first distressed corporate debt hedge funds and, over the last 18 years, has seated 19 asset managers.

Pioneers in the development of the securitization market, Capasse and Ross were the co-founders of Merrill Lynch's asset-backed finance group in the 1980s. They worked together until 1994 when Capasse left Merrill to join Greenwich Capital. In 1997, Capasse moved on to run the principal finance group at Nomura Securities before becoming the

co-head of the principal transactions group at Macquarie Securities in 2001.

Ross left Merrill in 2000 and founded a specialty intellectual property finance company named Licent Capital, based in Jericho, N.Y. Capasse and Ross reunited in 2004, with plans to establish Waterfall.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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