JPMorgan Fleming Asset Management is planning to launch a mortgage-backed securities hedge fund, dubbed the JPMorgan Absolute Return Mortgage Fund. Michael Pecoraro, cio of the fixed-income group, will manage the fund. Its size will be up to $40 million, according to a Credit Suisse First Boston prime brokerage document.
The fund will make long and short bets in traditional pass-throughs, collateralized mortgage obligations and mortgage derivatives. It will also invest in Treasury futures, interest-rate swaps and swaptions. Its positions will be mostly duration neutral and vary from one week to one month. The fund will employ leverage through so-called to be announced trades but also may use structured transactions, secured financing, loans and derivatives, according to the marketing document.
The minimum investment will be $5 million. The management fee will be 1% for class A shares and 1.5% for class B shares, though the document does not explain the distinction between classes. There is a 20% performance fee and a 3% redemption penalty if investors exit in the first 12 months. C.S. Venkatakrishnan, head of fixed income, declined comment.