Hedge Fund Manager Devaney Returns to Subprime After Yacht Sale
Hedge Fund Manager Devaney Returns to Subprime After Yacht Sale
By Pierre Paulden and Jody Shenn
Feb. 2 (Bloomberg) — Hedge fund manager John Devaney, who
had to sell his yacht and jet plane last year after wrong-way
bets on mortgage securities, says it;s time to buy bonds backed
by subprime loans.
The chief executive officer of United Capital Markets
Holdings Inc., who lost more than 35 percent for at least one
client last year and prevented investors from withdrawing their
cash, says bonds derived from subprime mortgages are a bargain
after falling as low as 10 cents on the dollar. TCW Group Inc.
and Pacific Investment Management Co. are also betting that
prices will recover.
“Just because I lost money doesn;t mean I will quit, no
way,;; Devaney, who sold his boat “Positive Carry;; and
Gulfstream IV, said in a telephone interview from Key Biscayne,
Florida. “Prices have collapsed and this is the best opportunity
I;ve seen in my career.;;
While the worst real estate market since 1981 caused demand
for bonds backed by subprime mortgages and collateralized debt
obligations to evaporate, 5,700 people are scheduled to attend
the American Securitization Forum annual conference in Las Vegas
starting tomorrow, said Katrina Cavalli, a spokeswoman for the
organization.
New York-based Bear Stearns Cos., whose hedge fund losses
helped trigger the seizure in credit markets, and Calabasas,
California-based Countrywide Financial Corp., the biggest U.S.
mortgage lender, are sending speakers and hosting events at the
meeting, which is being held at the 4,000-room Venetian Hotel.
Countrywide, which agreed to be bought by Bank of America
Corp. of Charlotte, North Carolina after losing as much as 89
percent of its market value, is throwing a party to coincide with
the National Football League;s Super Bowl championship.
Leno, Spade
Devaney, 38, paid for comedians Jay Leno and David Spade to
perform in previous years. This time, he;s sponsoring dinner and
a show by the Blue Man Group, a theatrical troupe that sprays
paint on the audience and vomits fake food.
When delegates met a year ago, asset-backed bonds — debt
created from pools of mortgages, credit-card bills and auto loans
– were booming. Sales rose fivefold to $2.57 trillion in 2006
from $500 billion in 2000, according to industry newsletter
Asset-Backed Alert.
By December, home foreclosures had almost doubled from the
previous year, according to RealtyTrac Inc., an Irvine,
California-based seller of foreclosure information. The collapse
of subprime mortgages contributed to more than $133 billion of
losses and writedowns at the world;s biggest banks in 2007,
according to data compiled by Bloomberg.
Sold the Yacht
Yields on three-year AAA debt backed by subprime loans rose
last month to 2.75 percentage points more than benchmark rates
from 0.15 percentage point a year earlier, according to Bank of
America;s securities unit.
Devaney;s Horizon ABS offshore fund, which gained almost 40
percent in 2006, had to stop investors from taking money out
during July amid losses, he said in a statement at the time.
CompuCredit Corp., a lender to consumers with poor credit, lost
36 percent of the $70.5 million it invested with Devaney,
according to a July regulatory filing by the Atlanta-based
company.
Losses, mainly from mortgage bonds and CDOs, forced Devaney
to sell his 142-foot (43 meter) yacht, the jet and real estate.
“We took a bad loss,;; Devaney said. “Selling the boats and
planes helped reduce overhead and raised money to put back into
the business.;;
TCW, Pimco
No new U.S. CDOs, which package loans and bonds into debt
securities, have been issued this year. Sales will tumble 65
percent in 2008 to $163 billion, according to reports from New
York-based JPMorgan Chase %26amp; Co. Losses from subprime securities
may exceed $265 billion as regional U.S. banks, credit unions and
overseas financial institutions write down the value of their
holdings, Standard %26amp; Poor;s said this week.
Prices will probably rebound after banks and investors
finish writing down and selling the securities, said Devaney. The
New York Times, in an April article, said Devaney earned $250
million dealing in asset-backed bonds and distressed debt.
TCW in Los Angeles and Newport Beach, California-based
Pimco, which manages the world;s biggest bond fund, started funds
last year to invest in distressed mortgage debt, betting that
prices are cheap enough that they will make money even if
defaults continue to rise.
Attendance at the annual conference will be about 17 percent
lower than last year, said Cavalli, the spokeswoman. In contrast
to 2007, when the gathering focused on growth, panel discussions
this time will include sessions on restoring confidence as the
value of securities tumble.
Among the scheduled presentations: “How are traders coping
with decreased deal volume,;; “How do managers of various CDO
structures react to adverse market conditions;; and “What steps
do investors believe are the highest priorities to rebuild
confidence?;;
To contact the reporter on this story:
Pierre Paulden in New York at
