Ellington gathers $80m for first PE-style fund – exclusive

The Connecticut-based credit hedge fund has reached a first close on its Ellington Private Opportunities fund, which targets a variety of real estate loans.  

Ellington Management Group, has reached a first close on its Ellington Private Opportunities (EPO) fund, putting it almost one-third the way to its fundraising target.

The credit manager collected about $80 million toward its $250 million goal, according to sources familiar with the firm. The fund is the Ellington's first private equity-style vehicle. Its existing strategies have been in the form of hedge funds, real estate investment trusts and structured credit investments.

EPO was launched to capitalise on the opportunity created by banks retrenching from lending, PDI understands. Investments in this fund include consumer and residential loans, commercial real estate and non-performing (or sub-performing) loans.

Ellington declined to comment on fundraising.

One of the investments in the new fund is a loan secured by an industrial building in Danbury, Connecticut, sources told PDI . The investment is expected to mature in six months with a full payoff once the borrower refinances, which would result in a 21.02 percent net IRR.     

The firm generally handles mortgage-backed and asset-backed structured credit investments. The new fund is designed to to give more room to less liquid loans. These longer-dated deals are already a part of the firm's flagship credit hedge fund, the Ellington Credit Opportunities fund, but Ellington sees increasing opportunities in this area, PDI understands.

Old Greenwich, Connecticut-based Ellington was founded in 1994 by Michael Vranos (pictured). The chief executive is a star mortgage bond trader who, over the course of his career, has seen the firm through several challenging financial events.

In 1998, the firm was affected by the demise of Long Term Capital Management. Ellington was forced to liquidate a large part of its book mortgage-related securities while responding to margin calls from lenders, according to The New York Times then.

In 2007 with the subprime mortgage crisis, the firm's flagship fund lost more than 20 percent and assets dropped to $1.2 billion from $5.5 billion, prompting the firm to raise gates, according to The Wall Street Journal coverage at the time. The firm has since recovered and its assets are now back at $6 billion.

Some credit hedge funds have suffered blow ups in recent years. Given their liquidity structure, where investors can usually withdraw money on a quarterly basis, industry experts say there is an inherent liquidity mismatch with hedge funds that work on lending. As such, several credit hedge funds have been choosing private equity structures instead, or adding them to their existing suite of products.