Lehman Veterans Ride Credit Cycle

Chidem Kurdas

Long/short credit funds were the top performers year-to-date as of July, returning about 7% according to Greenwich. That’s pretty good, considering that the Greenwich Global Hedge Fund Index is up only 1.3% while major equity markets are in the red.

In large part this a classic story of bottom feeding. Snap up paper that got labeled “toxic” in the crisis and became absurdly cheap. Then wait till prices start moving back to reasonable levels—which did not take as long as one might have expected from the severity of the crisis.

A credit fund that’s found favor with certain large investors is One William Street Capital Partners, started by David Sherr, who headed Lehman Brothers’ securitization business but left more than a year before the bank’s collapse in 2008. 

High-level Lehman Brothers managers joined him, including but not limited to Matthew Ziffer, an expert in distressed mortgages, Khalil Kanaan, a mortgage securities trader, and Frank Prezioso, a non-mortgage lending and securitization specialist.

One William Street got going in 2008 with backing from Lehman and initially had a hard time raising money. Surprise! Mortgage securities didn’t appeal to a lot of people as real estate melted and collateralized debt became a dirty expression. However, conditions changed, credit investments looked attractive and Mr. Sherr pulled together more than $2 billion in assets.

An investor says the group has the skills to vet mortgage and asset-backed securities and is well regarded. The fund offers quarterly redemptions after a one-year lock-up, which is considered acceptable terms for credit investments.

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