Ellington Management Group Explained

Ellington Management Group
Type:Limited Liability Company
Industry:Hedge fund
Predecessors:-->
Successors:-->
Founded:1994
Founders:--> Mike Vranos
Laurence Penn
Areas Served:-->
Owners:-->

Ellington Management Group is a multi-billion dollar hedge fund operation.[1] As of June 2019, the firm was reportedly managing $8.5 billion in structured products and other credit instruments.[2]

History

The firm was co-founded in 1994 by Mike Vranos and Laurence Penn with funding from Ziff brothers investments.[3] By the end of 1995 the firm had become a three-fund operation with a variety of assets.[4]

Ellington was affected by the Long-Term Capital Management debacle in 1998.[5] For a few days in mid-October, the firm sold mortgage securities to lower its funds' leverage.[6] [7] The firm issued a public statement describing its borrowings to quell public fears, which was considered unusual for hedge funds at the time.[8] It clarified that although it was meeting margin calls by unloading hundreds of millions of dollars in assets over a two-day period, losses were limited.[9] One report suggests some of Ellington's hedge funds may have temporarily lost around 25% of their value as they liquidated $2 billion in assets after allegedly missing a margin call from UBS.[10] [11] However, from its December 1994 inception through April 2004, the firm delivered a composite annualized return of 15.4%, after fees.[12]

Notable investments

Various of Ellington's funds have invested in distressed mortgage-backed securities over time.[13] By 2004 their $3 billion in hedge fund assets included mortgage derivatives.[14] In October 2007, as the future credit performance of residential mortgages became increasingly uncertain, one of the funds is reported to have fallen in value by 22%[15] and to have temporarily suspended redemptions pending greater clarity around valuations.[16] As of 2007, Ellington Management's assets included $1.2 billion in a managed account, $5.4 billion in hedge funds and private accounts, and almost $23 billion in collateralized debt obligations. In 2014 an office was opened in London, England in order to expand into the European market.[17]

Subsidiaries

In June 2007, Ellington Financial LLC was launched.[18] The offering primarily targeted investments in non-agency mortgage-backed securities. The deal was underwritten by Friedman Billings Ramsey and although originally slated for a $750 million offering,[18] evolving market conditions only allowed for a $250 million capital raise.[15] Before the private placement, a New York Times columnist noted that a portion of the private placement might be used to purchase risky tranches from bankrupt subprime lender New Century Financial Corporation and noted the potential difficulty in valuing such instruments.[18] In October 2010, Ellington Financial LLC went public, debuting on the NYSE.[19] According to its public filings, Ellington Financial invests primarily in non-agency mortgage-backed securities, but also holds agency pools and other mortgage-related securities, and had a total return of 59% between its August 2007 inception and the end of 2011.[20]

Ellington Residential Mortgage REIT, chaired and founded by Mike Vranos, went public on the NYSE after its IPO in late 2013, trading under the ticker symbol EARN.[21]

Notes and References

  1. Web site: https://web.archive.org/web/20071212193441/http://www.ellington.com/team.html. December 12, 2007. Ellington: An Experienced and Successful Team. December 9, 2007. Ellington Management Group, L.L.C. .
  2. Web site: Managers turn up volume with Billy Idol fundraiser. Williamson. Christine. September 2, 2019. Pensions & Investments. February 5, 2018.
  3. News: Vranos's Ellington Management Sells Big Chunks of Hedge Fund's Holdings. Pacelle. Mitchell. October 13, 1998. The Wall Street Journal. February 5, 2018.
  4. Web site: Another harrowing hedge fund tale . Chris Byron . February 10, 2014 . MSNBC.
  5. News: THE MARKETS: Market Place; Still Another Hedge Fund Seems to Be in Financial Peril. October 13, 1998. December 9, 2007. The New York Times. Reed Abelson.
  6. News: Digest. https://web.archive.org/web/20140611093107/http://www.highbeam.com/doc/1P2-693462.html. dead. June 11, 2014. April 22, 2012. October 13, 1998. The Washington Post. subscription. Ellington Capital Management, a hedge fund run by former Kidder, Peabody trader Michael Vranos, offered $1.5 billion in mortgage securities yesterday, traders said, despite weak investor demand for mortgages..
  7. Web site: Picking Up The Bond Pieces While Waiting For The Next Shoe To Drop. https://web.archive.org/web/20140611093049/http://www.highbeam.com/doc/1N1-108490F7267D4D1A.html. dead. June 11, 2014. April 22, 2012. October 14, 1998. Post-Tribune. subscription. Monday was a holiday for the bond market, but it was a work day for some trading desks attempting to find buyers for securities and derivatives that leveraged funds were forced to liquidate to meet margin calls. Come Tuesday, the newspapers were reporting that Ellington Fund, run by former Kidder, Peabody mortgage whiz Michael Vranos, had become the latest casualty of the great deleveraging trade of 1998, driven by a huge widening of credit spreads that punished holders - indiscriminately - of all instruments except those issued by the U.S. Treasury..
  8. News: INVESTING: DIARY; Pssst. . .We Have No Problems At This Hedge Fund. Really.. December 9, 2007. October 18, 1998. The New York Times . Abelson, Reed.
  9. News: Hedge Fund Firm Says It Covered Its Losses. December 9, 2007. October 18, 1998. The New York Times .
  10. Web site: UBS hedge fund exposure. https://archive.today/20120907223419/http://www.highbeam.com/doc/1P2-4954607.html. dead. September 7, 2012. April 22, 2012. October 17, 1998. The Independent. subscription. UBS last night refused to comment on reports that it had liquidated $250m of bonds held as collateral after Ellington allegedly missed a margin call this week..
  11. Book: A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform . 440 . March 18, 2014 . Jerry W. Markham . M.E. Sharpe . 2006. 9780765615831 .
  12. News: Ellington's Vranos Says He Won't Crash Again Amid Rate Increase. https://web.archive.org/web/20121025153007/http://www.bloomberg.com/apps/news?pid=nifea&&sid=af0p0runDaRE. October 25, 2012. August 30, 2009. June 29, 2004. Bloomberg News. dead.
  13. Web site: Ellington, Citadel, Marathon Emerge as Distressed Players. https://web.archive.org/web/20140611093057/http://www.highbeam.com/doc/1P2-10027865.html. dead. June 11, 2014. April 22, 2012. July 31, 2007. Daily News. Trincal, Emma. subscription.
  14. Web site: Ellington's Vranos Says He Won't Crash Again Amid Rate Increase . Michael Peltz . March 18, 2014 . June 29, 2004 . Bloomberg.
  15. News: Vranos May Try to Reopen Ellington Credit Fund. Dow Jones & Company, Inc.. The Wall Street Journal Online. December 9, 2007. Zuckerman, Gregory. December 6, 2007.
  16. News: U.S. Investors Face An Age of Murky Pricing. Dow Jones & Company, Inc.. The Wall Street Journal Online. December 10, 2007. Pulliam, Susan, Randall Smith and Michael Siconolfi. October 12, 2007.
  17. News: US hedge funds set to expand in Europe . April 4, 2014 . . December 22, 2013 . Stephen Foley.
  18. News: Mr. Vranos Has a Deal for You. December 10, 2007. July 22, 2007. The New York Times . Morgenson, Gretchen.
  19. Web site: In Hindsight. https://web.archive.org/web/20140611093053/http://www.highbeam.com/doc/1G1-239403861.html. dead. June 11, 2014. April 22, 2012. October 15, 2010. Investment Dealers' Digest via Highbeam. subscription.
  20. Web site: Securities and Exchange Commission EDGAR Filings. April 28, 2012.
  21. Web site: EARN IPO . February 11, 2014 . NASDAQ.

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