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June 15, 2018  

Mortgage-Bond Manager Shutting Down

Structured Portfolio Management, a mortgage-bond shop that made a killing for its investors in the wake of the financial crisis, is unwinding.

Talk began circulating last week when Bank of America offered a portfolio of mortgage derivatives on behalf of an undisclosed hedge fund manager. Now comes word that the package, with a face value of more than $1 billion, represented the holdings of SPM’s main fund.

The liquidation is tied to a move by founder Don Brownstein and chief executive Ken Cron to shut down the Stamford, Conn., firm, sources said. SPM started the year with a staff of more than 30, including nine investment professionals. Neither Brownstein nor Cron returned messages seeking comment.

One source said SPM had about $1.5 billion under management when it began unwinding — down from about $2 billion a year earlier. Including leverage, the assets managed by SPM dropped from $12 billion in 2013 to about $6 billion at the start of this year.

“This firm had a very long, very successful run, but sometimes things just come to a natural end,” one source said. “It’s another case of a large legacy mortgage fund with seasoned ownership and no transition plan.”

Like a number of mortgage-focused hedge funds, SPM delivered stellar returns in the years immediately following the 2007-2008 market crash by investing in devalued securities and booking profits as the housing market recovered. One vehicle, SPM Structured Servicing Holdings, posted gains of 135% in 2009 and approximately 50% in 2010, then went on to earn 19.6% in 2011, 28.1% in 2012, 3.2% in 2013 and 10.5% in 2014.

But as distressed-mortgage opportunities began to dry up, a number of investors withdrew their capital. Then, in 2016, a team led by portfolio manager Charles Smart left to start a hedge fund business that launched early last year under the name Nara Capital. Soon after, Brownstein relinquished the title of chief executive of SPM and became non-executive chairman.

One source said Brownstein and Cron decided to pull the plug in part because chief investment officer William Mok recently gave notice that he would leave. He has been a member of the firm’s investment team since 2003.

SPM invested in a variety of mortgage products, including agency and non-agency bonds, mortgage servicing rights, interest-only strips and other types of derivatives. The assets auctioned last week were bought by four unidentified dealer desks. The assets changed hands on June 6.

Brownstein founded SPM in 1997. He previously ran a mortgage-servicing unit of Caisse des Depots et Consignations, and before that worked at Franklin Savings, which pioneered the use of quantitative techniques in trading mortgage-backed securities. Brownstein started his career as a professor at the University of Kansas and University of Texas.