Former Goldman Trader to Launch $1 Billion Mortgage Hedge Fund

Add another to the growing glut of hedge funds lining up to throw money at the primary and secondary mortgage markets: Bloomberg News reported Thursday that none other than Josh Birnbaum has bolted from Goldman Sachs Group (GS: 182.84 +0.88%) to form his own hedge fund. Birnbaum is known as one of the key traders that led Goldman to bet against subprime mortgage bonds before it was cool to do so; as we know now, that bet worked out pretty well.

It’s not clear exactly what his play will be this time, although sources have speculated he’s looking to get into the distressed asset marketplace, like many others — more than 80 funds have popped up in the past 10 months, all designed to buy bad mortgage debt on the cheap and turn it for a profit. He’s targeting $1 billion in capital, Bloomberg reported.

From the report:

“This is a guy who at this point, should have very little difficulty raising capital, because he’s demonstrated a lot of ability to recognize trends,” said Douglas Ciocca, a portfolio manager at Renaissance Financial Corp. in Leawood, Kansas. Renaissance, which oversees $1.7 billion, manages investments in shares of financial firms including Goldman and Merrill Lynch & Co., which today reported a $1.96 billion quarterly loss.

No offense to Birnbaum, but we get the sense that distressed mortgage assets is such a hot play right now for private money that raising funds has been likened to “shooting fish in a barrel” by more than a few managers we’ve spoken with here at HW.

The challenge for most managers in this area, whether they buy the securities backed by a pool of mortgages or whole loan pools on their own, is likely to be how to best manage the underlying assets in question. Plenty of hedge funds are already backing their own special servicing shops — Marathon Asset Management being one such case — but the challenge for those newer to the so-called scratch-and-dent business will be to expeditiously manage losses.

HW readers know that I’ve written before about how the amount of private capital out there now will change default servicing. This is yet another example of just how dramatically the landscape can change over the course of the next 12 months.