(Bloomberg) -- The family office of Jim Pallotta, an early investor in Two Sigma Investments and Graham Capital Management, is backing a new hedge fund that aims to seize on pockets of distress in the US housing market.
Raptor Group is a seed investor in Trevally Capital, which is expected to debut early next year and will trade US residential mortgage-backed securities, according to an investor presentation seen by Bloomberg.
The family office will have a revenue-sharing agreement and receive a fee discount as part of the founder share class, a person familiar with the matter said.
Trevally is a minority-led firm co-founded by Chief Investment Officer Steve Palmer and Co-Chief Executive Officers Matt Jozoff and Brett Nicholas. It has raised about $100 million in total seed capital, including backing from investment bank Seaport Global Securities, and it has early commitments from other investors for as much as $150 million more.
Representatives for Raptor and Seaport declined to comment, as did Trevally, which is named for a predatory fish with excellent vision.
Trevally aims to make consistent double-digit returns by taking advantage of strains it sees on the housing market — including extreme weather, higher home insurance costs and elevated mortgage rates that have curbed borrowers’ mobility. It will initially focus on investments tied to government-owned Ginnie Mae, which securitizes mortgages taken out by low- and moderate-income households.
“We believe many servicers may become unable to perform their obligations, creating significant investment opportunity in Ginnie MBS,” the firm wrote in the investor presentation.
The founder share class will pay fees of 1% of assets and 10% of profits, while later investors will pay 1.5% and 17.5%, the document shows. Cash will be locked up for one year.
Palmer previously traded non-agency collateralized mortgage obligations at JPMorgan Chase & Co. during the 2008 financial crisis and later led mortgage trading at Bank of New York Mellon Corp.
Jozoff was previously co-head of fixed income, currencies, commodities and index research at JPMorgan, where he worked for almost 16 years. Nicholas most recently worked as chief operating officer at Praesagio Partners and previously spent two decades at publicly traded mortgage REIT Redwood Trust.
Before founding his family office, Pallotta oversaw a $10 billion portfolio at Tudor Investment Corp., where he was managing director of the US equities securities group. He also helped the firm make private equity bets and invest in other hedge funds before leaving in 2008.
Pallotta had equity stakes in the Boston Celtics and Italian football club AS Roma before selling both in recent years.
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