News - Hedge funds
Alistair Lumsden, the London hedge fund manager who foresaw the US sub-prime mortgage crash that led to the credit crunch, has warned the US housing crisis begun in 2007 is far from over.
He said the large inventory of US homes expected to be offloaded by distressed sellers, coupled with constrained financing from US banks and agency lenders, means there are more problems to come in the housing market.
The manager has predicted US home prices could fall up to a further 10% in 2012, denting confidence among American homeowners.
Along with veterans such as John Paulson, Lumsden, of $11bn asset manager CQS, was among the few portfolio managers to predict and correctly bet on the US sub-prime crisis, delivering 179% through his $1.5bn ABS fund in the two years to June 2009.
Speaking at CQS’s client conference today, Lumsden said one in every five US home sales is a forced transaction. “You have 11 million or more units of distressed supply, and a limit on credit available, so we expect to see a further decline in US house prices of up to 10% going through to 2012,” he said.
"Still then, there is significant amount of supply that will keep prices stable when they get there. What will be key will be existing home sales over the next two to three months, and how much distressed sales go up.
“If we see an increase in distressed sales that will impact the level of home prices in the home price indices, and the indices are an important part of the psyche of the underlying economy.”
Lumsden noted a lack of credit means about 30% of all US house purchases are all-cash transactions – “not a great signal” - and the US government has said it will try to withdraw the amount available through agencies Fannie Mae and Freddie Mac.
"The key is to have a hedged portfolio to cover downside risk, to hedge your tail risk under these scenarios,” the manager added.
Lumsden’s fund has over 80% of its exposure to the US, but he said more opportunities are likely to arise in Europe, especially if Greece restructures its debt.
Categories: Hedge Funds
Topics: Hedge funds
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