"Last year, Andrew Berger was riding high. The mortgage-trading team he oversaw at $12.8 billion hedge fund LMR Partners gained nearly $250 million in 2024, according to three people familiar with the matter. Now, the star trader is out at LMR after sharp losses in September, tied to a mortgage-backed securities bet, those people said, asking not to be identified because the information is private."
"It's unclear what caused the trade to unravel. Mortgage rates - which don't move in lockstep with US Treasury yields - initially dipped ahead of the Federal Reserve's September 17 rate cut, then jumped sharply afterward. Because a mortgage-backed security is composed of individual home loans, shifts in borrower behavior - such as refinancing or prepaying loans when rates change - can rapidly alter an MBS's value. When those positions are leveraged, even modest rate moves can translate into outsized losses."
A capital-intensive, highly leveraged residential mortgage-backed securities strategy at LMR Partners produced sharp losses in September that erased more than $100 million of year-to-date gains. LMR recorded a 0.9% loss that month, marking it as the only major multistrategy fund to lose money in September. The portfolio manager who ran the mortgage-trading team, who had generated nearly $250 million in gains the prior year and joined LMR in 2022, has exited the firm. Mortgage-rate moves around the Federal Reserve's September rate cut and borrower prepayment or refinancing behavior amplified value swings in leveraged MBS positions.
Read at Business Insider
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