Jeff Kong featured in Opalesque - New Fund Launch

Benedicte Gravrand, Opalesque Geneva:

Tradex Global Advisors is concocting an all-weather absolute return strategy that aims to exploit the inefficiencies within the mortgage-backed securities (MBS) market. It will be run by Jeff Kong, who used to manage Passport Capital’s M1 Fund and SPM’s mortgage fund.

Jeff Kong joined Tradex Global Advisors LLC, an alternative asset management company based in Greenwich, CT, as a partner and portfolio manager responsible for all mortgage-related strategies, in July.

"Looking forward, we certainly expect the fixed income investing landscape to change dramatically as central banks alter course and the rules change. Success in this arena requires a talented and seasoned portfolio manager as well as an equally skilled organization. I believe that with Jeff at the helm, our business has both," then said Michael Beattie, one of the firm's founding partners and its Chief Investment Officer.

Prior to joining Tradex, Mr. Kong was a portfolio manager at Passport Capital, which he joined in 2010 to run the M1 Fund(which returned 13% in 2012). During the previous 10 years, Kong managed the approximately $1bn flagship SPM mortgage fund (the Structured Servicing Holdings or SSH) at Structured Portfolio Management; that fund annualized at +23.6% during his tenure. Prior to that, Mr. Kong served as a director at Donaldson, Lufkin & Jenrette for whom he was a market-maker in mortgage-backed securities, and a vice president at Greenwich Capital Markets.

"I have partnered with Tradex to launch a fund not unlike what I’ve managed in the past, both at SPM and at Passport," he told Opalesque. "Joining forces with Tradex was an easy decision since we have been in business together for over 10 years, as Michael and Richard were early investors in SSH. Our team is currently finalizing documents for our business relationships and service providers, and we are looking to launch the Tradex Relative Value (TRV) fund by Jan 1, 2015."

According to Mr. Kong, TRV is an all-weather absolute return strategy that aims to exploit the inefficiencies within the mortgage-backed securities market.

TRV’ strategy employs the arbitrage of implied versus delivered fundamentals to extract alpha. Because the performance of mortgage-backed securities is dependent on the understanding of the imperfect and changing behavior of borrowers, the team’s experience across numerous market cycles is advantageous, Mr. Kong says. The TRV platform enables them to provide excess returns for their investors throughout various interest rate and economic cycles.

The goal is twofold: to target a high level of positive carry in the fund and to capitalize on market dislocations that frequently present themselves during times of change or stress, as has occurred many times during Mr. Kong’s career.

"In fact," he adds, "the current economic landscape could likely lead to the type of market disruptions and volatility that present significant opportunity to the TRV strategy: the Fed’s exit from quantitative easing, the end of generationally low rates, and the questionable role of the Agencies in housing finance are examples of catalysts to market dislocation. With our infrastructure and team, we are excited to launch TRV into what we see as a period of uncertainly and therefore opportunity."

Background
An MBS is a type of asset-backed security that is secured by a mortgage or collection of mortgages. They are traded actively, much like bonds. The majority of MBSs are issued and backed by government-sponsored corporations such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). These securities provide safe income, and some capital appreciation as interest rates fall. Some investment banks, such as JP Morgan Chase, Citigroup and Credit Suisse, andMorgan Stanley, are being sued by investors claiming they were misled on the safety of MBS before the crisis, CalPERSbeing one of the alleged victims. But such securities are back in fashion among asset managers.

The Credit Suisse Fixed Income Arbitrage Hedge Fund index is up 3.89% YTD (to August) and returned 5.77% over the last 12 months. The HFRI Fixed Income-Asset Backed Index is up 7.1% YTD, 11.2% in the last 12 months.