Institutional Investor's Alpha Magazine - November 2007 - (Page 39)

“Folks that were long were giddy,” recalls Overstrom, who watched from the sidelines in 2004 as other investors enjoyed a further 70 percent run-up in the shares of home lenders. For Maverick, the craziness of the subprime market was in full display on February 5, 2005, when Ameriquest Mortgage Co., an Orange, California–based mortgage lender, paid $15 million to sponsor the halftime show at the Super Bowl. Not long thereafter, Maverick put on its ﬁrst subprime short. It wasn’t until early this year, however, that Maverick started to apply the pressure, after the financials team returned from a home lenders conference in Las Vegas. There they spoke to executives from several small West Coast lenders, who told them that their companies had stopped issuing subprime mortgages because Wall Street was no longer willing to buy them. “That was pretty important information,” says Overstrom, whose team was convinced that one of the major Wall Street firms had started to pull financing. “The pieces were starting to ﬁt together.” Going into the ﬁrst quarter earnings season, Maverick had large short positions in two major lenders. At one point the ﬁnancials team’s subprime bet accounted for 16 percent of Maverick Fund USA’s net assets. “We were willing to be in very illiquid positions,” says Overstrom. “If we were wrong, getting out would have been costly.” Maverick wasn’t wrong. So successful was Maverick’s subprime bet that Ainslie had one of his colleagues give a presentation on the investment at the partners’ meeting. Maverick’s conservative approach to investing, which emphasizes both capital preservation and growth, seems ideally suited for today’s volatile times, as evidenced by its 30 percent return for the 12 months through mid-October, with volatility of less than half that of the broader market. Ainslie wrapped up the partners’ meeting with a Q&A session. After a handful of polite inquiries, the audience was largely silent. “Are there any other questions?” asked Ainslie. “I can’t believe I am getting away so easily this year.” As the limited partners made their way upstairs into the library’s newly constructed steel-and-glass conservatory for a wine tasting hosted by Maverick, they appeared satisﬁed with what they had heard. The wines were organized by country, and in a typical Ainslie touch, the New Zealand selection included a sauvignon blanc from a vineyard owned by Julian Robertson. For Maverick, 2007 looked to be a successful vintage. Says Ainslie, “We are getting back to a level of returns that we can be proud of.” 4:41 PM http://KNIGHT.COM

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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