Meet Bloomberg Markets Magazines Best Performing Hedge Fund Manager of the year, Don Brownstein.
The founder of $2 billion Structured Portfolio Management used to be a physics professor and he and his co-manager just made over $87 million in one year.
60 six-year old Don Brownstein and his co-manager, William Mok, won’t say how they made their returns this year, which at +49.5% in their $1.1 billion Structured Servicing Holdings LP fund, were the best of the big (over $1 billion AUM) hedge funds.
All they will say is that their strategy has to do with mortgages – the market for exotic securities built from resi-dential mortgages, according to Bloomberg.
(These guys also returned 185% in 2007 because they predicted the crash.)
Their longtime strategy is to develop models that predict when homeowners will refinance their mortgages—a move that reduces interest payments on mortgage bonds. They then buy securities they conclude are underpriced.
Bloomberg takes a stab at what that really means:
Many homeowners have been unable to take advan-tage of tumbling rates to refinance their mort-gages because their houses are worth less than they owe on their loans. Investors that bet against a refinancing boom have profited.
The first thing to know about Brownstein, the founder of SPM, is that he’s brilliant. He taught philosophy and metaphysics at the University of Kansas for 10 years.
(Speaking of physicists, click here for 11 gorgeous Physicists Wall Street firms should hire right now >)
Then in the late 1980s, he became interested in finance and wrote an academic paper about securitizing commercial-property leases, according to the Wall Street Journal.
From the Journal:
He described the paper to Lou Ranieri, the legendary Salomon Brothers bond trader made famous in “Liar’s Poker.” Impressed, Mr. Ranieri introduced Mr. Brownstein to cronies around Wall Street, including luminaries such as Chicago real-estate mogul Sam Zell. He ended up landing a job at Franklin Savings Association in Kansas City in 1988, where he helped manage portfolios of residential mortgages.
Mr. Brownstein started SPM, based in Stamford, Conn., in 1997.
He’s also a huge history buff, and he thinks what happened in 2008 is just a repeat of what happened during the Depression.
And for a hint about what he thinks will happen next, look what he says was the tipping point in 2008:
“And if you want to know what, in my opinion, helped push the applecart over the cliff, it’s what both Ben Bernanke and Alan Greenspan talked about – it was a global savings glut.”