Photo: CNBC screenshot
Deepak Narula, founder of Metacapital Partners, is the most successful large hedge fund manager in 2012, and he did it trading mortgage bonds, says Bloomberg Markets Magazine.In a year when the hedge fund industry returned an average of 1.3%, Narula, a former Lehman Brothers mortgage trader, returned 34%. Since launching his fund in 2008, he’s returned 500% and his firm now manages $1.4 billion.
And here’s the trade that gave Narula a boost this year (from Bloomberg Markets Magazine):
Narula’s edge in 2012 was in reading the tea leaves of Washington policy makers. Toward the end of 2011, government- backed mortgage securities dropped in value as Obama expanded programs to help owners refinance and bonds without insurance fell amid the euro crisis.
Narula took advantage. He later concluded that the Federal Reserve was going to help homeowners and bought bonds ahead of its September announcement that it would buy $40 billion a month of agency — that is, Fannie-, Freddie- and Ginnie Mae-backed — mortgage bonds.
Narula came to the United States from New Delhi in 1985 to get a in Ph. D. in Management Science from Columbia University (he teaches as an adjunct at Columbia Business School now). He joined Lehman after graduating in 1989 and became known as one of the best mortgage minds on the Street.
He founded his fund, Metacapital Management, in 2001, but had to return money investors in 2007 because he was a little too early on his mortgage trade. He re-opened in 2008 and the rest is history — Narula killed it.
Check out this 2010 video where he talks about mortgages like most people talk about the weather. That year, by the way, he returned 53%. (from CNBC):