Ellington Management Group is a multi-billion dollar hedge fund operation. As of June 2019, the firm was reportedly managing $8.5 billion in

structured products A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single Security (finance), security, a basket of securities, Option (finance), options, Index (economics), indices, ...

and other credit instruments.

History

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

Long-Term Capital Management Long-Term Capital Management L.P. (LTCM) was a highly leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. LTCM was founded in ...

debacle in 1998. For a few days in mid-October, the firm sold mortgage securities to lower its funds' leverage. The firm issued a public statement describing its borrowings to quell public fears, which was considered unusual for hedge funds at the time. It clarified that although it was meeting

margin call ''Margin Call'' is a 2011 American drama film written and directed by J. C. Chandor in his feature directorial debut. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the ...

s by unloading hundreds of millions of dollars in assets over a two-day period, losses were limited. 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 UBS Group AG (stylized simply as UBS) is a multinational investment bank and financial services firm founded and based in Switzerland, with headquarters in both Zurich and Basel. It holds a strong foothold in all major financial centres as the ...

. However, from its December 1994 inception through April 2004, the firm delivered a composite annualized return of 15.4%, after fees.

Notable investments

Various of Ellington's funds have invested in distressed mortgage-backed securities over time. By 2004 their $3 billion in hedge fund assets included mortgage derivatives. 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% and to have temporarily suspended redemptions pending greater clarity around valuations. 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 obligation A collateralized debt obligation (CDO) is a type of structured finance, structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing Mortgage-backed se ...

s. In 2014 an office was opened in

London, England London is the Capital city, capital and List of urban areas in the United Kingdom, largest city of both England and the United Kingdom, with a population of in . London metropolitan area, Its wider metropolitan area is the largest in Wester ...

in order to expand into the European market.

Subsidiaries

In June 2007, Ellington Financial LLC was launched. 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, evolving market conditions only allowed for a $250 million capital raise. Before the private placement, a ''New York Times'' columnist noted that a portion of the private placement might be used to purchase risky

tranche In structured finance, a tranche () is one of a number of related securities offered as part of the same transaction. In the financial sense of the word, each bond is a different slice of the deal's risk. Transaction documentation (see indent ...

s from

bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the de ...

subprime lender

New Century Financial Corporation New Century Financial Mortgage Corporation was a real estate investment trust that originated mortgage loans in the United States through its operating subsidiaries, New Century Mortgage Corporation and Home123 Corporation. It was founded in 19 ...

and noted the potential difficulty in valuing such instruments. In October 2010, Ellington Financial LLC went public, debuting on the NYSE. 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. 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.

References

{{Reflist Financial services companies established in 1994 1994 establishments in the United States Hedge fund firms of the United States Private equity firms of the United States