Hedge Funder Who Bet Against Subprime Is Now Long The GSEs

Perry Capital

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New York-based hedge fund Perry Capital’s founder, Richard Perry, told a group of investors at a charity event in Chicago that he’s long GSEs (government-sponsored enterprises).What’s interesting is many believe that GSEs such as Fannie Mae and Freddie Mac are to blame for the financial crisis.

However, Perry sees a lot of upside in GSE Junior Preferred Securities.

From Market Folly:

At 8.5 cents on the dollar, Perry thinks they offer asymmetric risk reward for huge upside. By changing the guarantee fee “a little bit,” the CBO says they could raise $30 billion for each 10bps increase in fee and that could reopen the mortgage market and spur the economy (could happen over 2-3 years).

Perry, a Goldman Sachs veteran who was ranked the 962nd richest man in the world in 2008, is among the few investors who bet against the sub-prime market before the financial crisis hit. 

Beginning in 2006, Perry began shorting subprime.  The hedge fund shorted $3 billion that yielded $1 billion in 2007, according to Fortune.

According to Market Folly, Perry Capital, which currently has $8 billion AUM, has been down only one year during its 23 year life.  

However, recent media reports show that the hedge fund hasn’t been doing so well this year. 

Like many hedge funds showing poor performance numbers, Perry Capital was reportedly down 8% YTD as of the end of September amid increased market volatility and the ongoing eurozone debt crisis.

Last month, the hedge fund laid off 30 portfolio managers and analysts and three partners have been cut along with the closing of the Hong Kong offices as the fund turns its focus toward Europe and the U.S.

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