Alder Hill, a once-active CMBX6 short investor, sold out of its investment positions this summer, according to a source familiar with the company and a source briefed on the company’s activities.The company is closing its doors, according to the source familiar.
The hedge fund, launched in 2014, had two funds, the source familiar said. The larger fund focused on high-yield corporate debt and as well as some “event driven” equity positions. The second, smaller fund held the short CMBX6 positions, mostly the index’s BBB- tranche, he said.
Alder Hill is bowing out of the CMBX6 short trade in a year in which “risk-on” sentiment has been tough on retail bears. In 2Q19 Sorin Capital Management shuttered a fund that actively traded in CMBS and CMBX indices and returned the money to its investors, as reported.
Because of the index’s exposure to older malls, the CMBX6 has become a flashpoint in an investment debate over just how quickly the trend away from brick and mortar retail will occur and how the disruption will play out. Long investors, many of whom foresee a longer horizon for mall wind-downs and predict successful redevelopments of some of the properties, have been winning this year. CMBX6 BBB- spreads fell to S+ 632bps yesterday from S+ 832bps on 2 January, according to JPMorgan data.
Still, last week some bearish investors said the drop in the debt service coverage ratio of a large mall loan held in two CMBX6 reference deals could be a catalyst for a reversal in momentum. The DSCR NOI for the USD 141.1m Poughkeepsie Galleria loan held in UBSCM 2011-C1 (USD 63.5m) and UBSCM 2012-C1 (USD 77.6m) dropped below 1x, to 0.95x in 1H19.
“The fundamental question is why has CMBX held up?” the source said. “It has everything to do with two managers who have taken a different view and have an endless amount of money to support it.”
Asset management giant AllianceBernstein has maintained a long position in the CMBX6, taking a more positive view of the retail sector and actively disputing “deal mall” fears, as reported.
Hedge funds that are more moderately sized, such as Alder Hill, have a harder time competing in the market, the source familiar said.
Eric Yip is listed as a managing partner, CIO and portfolio manager of Alder Hill Management LP, according to his LinkedIn account. He previously was a principal/senior analyst at Appaloosa Management from 2010-2014 and prior to that he was a principal/senior analyst at Columbus Hill Capital Management from 2006-2009. An Alder Hill executive declined to comment.