We’re nimble, we’re looking to grow and those have been the real positives.Pollen Street Secured Lending ( PSSL) has been renamed Alternative Income Credit (ACI), its third moniker in just over six years as the direct lending fund waits to see if it will receive a long-awaited bid from new manager, Waterfall Asset Management.ĪCI, which began life as P2P Global Investments in 2014, switched to Pollen Street Capital in 2018 after its previous manager at Marshall Wace Eaglewood disappointed investors with a rapid expansion that diluted returns.
“Jack and Tom have built a team with deep expertise and a broad platform that’s allowed us to pursue interesting trades in many different sectors in both the US and Europe. “They instilled an entrepreneurial and innovative culture at the firm,” says Geraghty. But he also points to the culture created by founders Tom Capasse and Jack Ross, veterans of many credit cycles over many decades in the capital markets. That has provided a deep, stable base of capital that not every alternative investment manager can boast it has. Geraghty attributes part of Waterfall’s competitive edge to strong relationships it has built with long term investors. There’s a particular focus on the Sharpe ratio, which has allowed Waterfall to offer investors compelling risk-adjusted returns. The firm is proud of its track record over its 16 years and strives to be in the top decile of alternative investment managers. “But we look at the whole landscape of the asset class and look to participate in a variety of ways.” “We’re sector rotational around relative value and in recent years the biggest focus has been on RMBS, CMBS, and esoteric ABS,” says Geraghty. Waterfall is active in over 40 different ABS sectors across the US and Europe. Few firms could claim to be active across the same breadth of sectors and products. The firm’s investment team comprises 64 full-time staff in New York and London, covering a range of structured credit across bonds, loans, and private equity. Waterfall has tripled its AUM from approximately $3bn in 2013 to approximately $9.5bn. We’ve been happy with our returns and our committed investor base.” “These were really unprecedented market conditions and we manage many credit intensive instruments. “We came through to the other side stronger and with higher AUM,” Geraghty says. This was a challenging year for most market participants, even for hedge fund managers, who tend to be more nimble operators than most. Waterfall was pleased with its performance throughout a highly disruptive 2020. “Waterfall continues to see new ABS investors entering the reverse mortgage market,” he adds, “and capital solutions like the CFMT deal will help build a more liquid market that has the potential to benefit issuers, investors, and borrowers.” “Balancing the reinvestment period for issuer and investors was mutually beneficial.” “Some of the inactive deals prepay really quickly and so there’s reinvestment risk,” says Geraghty. The investors, meanwhile, may benefit from a more stable duration profile. This allows Waterfall to fund additional eligible collateral for two years, investing in similar assets as repayments occur.
“This deal was backed by what we believe are high quality assets, met with solid investor demand, and was syndicated to over 10 accounts.” The deal was also the first to consist entirely of active assets, and only the second securitization to include active assets, a departure from a market that has consisted largely of NPLs and inactive assets.Ī third feature that caught the market’s eye was the 24-month reinvestment period – a first for a transaction backed by home equity conversion mortgages which are reverse mortgages that are insured by the Federal Housing Administration. “The reverse mortgage sector was as resilient, or even more resilient, than broader structured markets throughout the pandemic, driven in part by the fact that reverse mortgage borrowers typically are not required to make principal and interest payments,” says Geraghty. The $285.8m CFMT 2020-AB1, with Nomura as sole structuring agent and bookrunner, stood out in several ways. Reverse mortgage deals are relatively rare, but have become a specialty for Waterfall, which has issued 12 reverse mortgage securitizations since 2013 with over $5.4bn of collateral balance. The firm brought three RMBS deals to market in 2020 following the pandemic outbreak, but it was the Cascade Funding Mortgage Trust (CFMT) 2020-AB1 that was voted the stand-out deal of the year. The residential mortgage sector has been a core focus for the company since it was founded in 2005, says Tim Geraghty, Waterfall’s head of capital markets.
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