Tradex Global hires former SPM and Passport PM Jeff Kong to lead mortgage business | HedgeFund Intelligence

Tradex Global hires former SPM and Passport PM Jeff Kong to lead mortgage business

By Simone Foxman (HedgeFund Intelligence)
Wed Jul 9, 2014


Kong will become the firm’s fourth partner and oversee two new strategies. 

The man who managed Structured Portfolio Management's flagship fund for ten years has landed at Tradex Global Advisors, a Greenwich, Conn. asset manager that's looking to make a name for itself in mortgage trading.

Jeff Kong will manage the Tradex Relative Value Fund, according to marketing materials obtained by Absolute Return, which the firm plans to launch in the fourth quarter. He is Tradex's fourth partner, joining chief investment officer Michael Beattie, director of research and risk management Richard Travia, and president Jeff Trongone.

Kong's brainchild will be "a liquid, actively managed fixed-income/mortgage strategy…[that] targets low to mid-teens returns in the current environment," the documents said. The fund is described as investing in interest-only mortgage bonds, prepayment arbitrage, and agency mortgage-backed securities. The marketing document gives an example fund portfolio comprised of 60% prepayment arbitrage trades, 30% relative value agency MBS positions, and 10% opportunistic investments.

"Our goal is two-fold: to earn an excellent ongoing revenue stream and-as important-to be ready to capitalize on market dislocations that frequently present themselves at times of change or stress," Kong told Absolute Return in an email. "The team at Tradex understands the mortgage space as well as any allocator. It was thus a natural fit that Tradex and I join forces."

The partnership between Kong and Tradex is a result of more than a decade of acquaintance between Kong and Beattie, and their families; Beattie's daughter, who later worked on the trading team at AQR Capital Management, served as a summer intern at SPM reporting to Kong. Beattie has also allocated money to SPM's mortgage-focused hedge funds through Tradex Global's fund of funds products.

Tradex credits Kong for much of SPM's success. Kong had worked for SPM founder Don Brownstein as a portfolio manager and senior managing director from March 2000 to May 2010. During that time, the flagship Structured Servicing Holdings Master Fund^[2] produced a net annualized return of 23.56%, and its assets increased from $30 million to $917 million. After leaving SPM, Kong joined John Burbank's Passport Capital later that year, setting off a contentious legal battle with Brownstein. Brownstein sued Kong for $10 million alleging that he violated a non-compete clause; Kong countersued for $74 million, alleging he had not be properly compensated for his performance. Those disputes were settled in 2011 (the terms of the settlement were not disclosed).

Since Kong's departure, the SPM Structured Servicing Holdings Master fund has continued to do well, producing a net annualized return of 21.39% from June 2010 through May 2014. The fund is a frequent nominee and winner^[3] of the Absolute Return Awards for hedge fund performance: It won an award for best fixed income and mortgage backed securities fund in 2010^[4], and was nominated in this category in 2008^[5], 2009^[6], and 2011^[7] again. It also won an award for long-term performance (10 years) in 2012^[8], an honor for which it was nominated again in 2013^[9]. SPM did not respond to requests for comment.

Kong became the portfolio manager for Passport's M1 Fund, which launched in October 2011. The fund generated a return of 2.31% in the final three months of 2011 and rose 12.99% in 2012, but fell 4.9% in the first four months of 2013, according to Tradex marketing documents. Passport decided to liquidate the fund and focus on long/short equity strategies^[10] on May 1 of that year, leading to Kong's departure in September. Steve Bruce, an external spokesman for Passport with ASC Advisors, declined to comment.

Early in his career, Kong had been a market-maker in mortgage-backed securities at Donaldson, Lufkin & Jenrette, a vice president for Greenwich Capital Markets, and a senior analyst at Citibank. He graduated from the University of Florida.

Kong will oversee two separate funds at Tradex: the multistrategy mortgage relative value vehicle and a liquid relative value sub-strategy that will offer weekly liquidity. His team will include trader K. Daniel Libby, analyst William Mitchell, and risk manager Richard Travia.

Separately, Travia is also a portfolio manager of a limited-duration short-biased high-yield fund, launched earlier this year. Ed Altman, a professor of finance at New York University and a bond expert who invented the Z-score formula for predicting bankruptcy, serves as an advisor to the fund.

Tradex Global Advisors-launched in 2004 by Beattie and Travia-was the fund of funds spinout of asset management firm Tradex Capital Markets, which launched in 1998. The affiliates once comprised $3 billion in assets. TCM, which once ran $2 billion, returned money to outside investors in 2010, when it saw dimming opportunities in currencies.

Beattie believes Tradex Global will ultimately encompass several business areas: a series of independently managed accounts, a mortgage business with Kong at the helm, and a series of concentrated, sector-focused funds of funds. "I think the investors are actually tired of putting their money into a black hole where the returns have been fairly low and the visibility has been poor," Beattie told Absolute Return.

The firm expects the Tradex Relative Value Fund to launch with a minimum of $50 million. The fund will charge a 2% management fee and 20% performance fee, but will also offer a founders share class with discounted fees. Investors will be able to redeem on a monthly basis upon 90 days' notice.