The Secret Behind The #7 Best Performing Hedge Fund Of 2010: The 10 maths Geniuses They Got In China

Brian Taylor

Brian Taylor’s Pine River Capital returned 91% in 2009 and in 2010, one of their portfolios, Steve Kuhn’s $1.2 billion portfolio, returned 27% betting on the same strategy.His bet was basically that the market, which was implying that 60% of U.S. homeowners would refinance their mortgages within one year, was wrong. Kuhn found that in 2003, those numbers had been correct, and predicted that the same wouldn’t happen again.

But the way he figured that out is pretty complicated.

He told Bloomberg Markets Magazine:

IO bonds were trading at 9 cents on the dollar, says Kuhn, manager of Pine River’s Nisswa Fixed Income fund. The price implied that 60 per cent of borrowers would refinance within one year, he says.

We’ll admit – we don’t follow. Kuhn is obviously a lot smarter and knows a lot more about mortgages than us.

But the smartest thing Kuhn and Taylor have done might have been hiring a team of Chinese geniuses.

Pine River Capital went so far as to open an office in Beijing in 2010 to tap a new pool of maths experts.

Numbers crunched in China are sent to an 11-person mortgage team in Pine River’s office in New York.

The fund is used to going to extremes. It was launched in a lakeside cabin in the middle of nowhere so no one would catch Taylor while he was borderline breaking a non-compete clause.

Reuters has the story:

A strict non-compete clause forced him into his family’s lakeside cabin to start his new venture, Pine River Capital Management.

For one year, Taylor was prohibited from working within 100 miles of Minneapolis, where he began his career. Others might have moved east to set up in hedge fund hubs like Chicago or New York, but Taylor moved 160 miles north to the town of Pine River, Minnesota.

Population: 928.

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