If the end of the world is near for the credit markets, word hasn’t reached Durham, North Carolina. The city is home to $26 billion institutional money manager Smith Breeden Associates. To the firm’s top executives, the current turmoil offers the chance of a lifetime. “This is a multigenerational opportunity,” says Daniel Dektar, Smith Breeden’s chief investment officer.
Now, says Dektar, buyers can acquire high-quality assets at fire-sale prices in the mortgage-backed-securities market. Smith Breeden is even dipping into the subprime sector, where the credit crisis first took hold. The firm, which runs about $2.3 billion in absolute-return strategies, is walking the walk: “Well over half” its alternative assets, says Dektar, are invested in mortgage-related securities.
Patrick McMahon, co-head of investment at New York–based hedge fund firm MKP Capital Management, which manages $4 billion in assets, echoes Dektar’s enthusiasm. “We look forward to one of the...