Waterfall Asset Management (Waterfall) is an American

alternative investment An alternative investment, also known as an alternative asset or alternative investment fund (AIF), is an investment in any Asset classes, asset class excluding capital stocks, Bond (finance), bonds, and cash. The term is a relatively loose ...

management firm headquartered in

New York City New York, often called New York City (NYC), is the most populous city in the United States, located at the southern tip of New York State on one of the world's largest natural harbors. The city comprises five boroughs, each coextensive w ...

. The firm's focuses investments in credit

structured product A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, an ...

s mainly high-yield asset-backed securities (ABS). It also invests in real estate and

private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...

. Outside the U.S., Waterfall has offices in London, Dublin and Hong Kong.

Background

In the mid-1980s to the early 1990s, Tom Capasse and Jack Ross worked together at

Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporated, doing business as Merrill, and previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investm ...

where they established its ABS Group. Ross worked on the first auto loan

securitization Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans, or credit card debt obligations (or other non-debt assets which generate receivables) and sellin ...

in 1985 when he was previously at

Drexel Burnham Lambert Drexel Burnham Lambert Inc. was an American multinational investment bank that was forced into bankruptcy in 1990 due to its involvement in illegal activities in the junk bond market, driven by senior executive Michael Milken. At its height, i ...

while Capasse crafted some of the first

subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

mortgage-backed securities A mortgage-backed security (MBS) is a type of asset-backed security (an "Financial instrument, instrument") which is secured by a mortgage loan, mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals ( ...

in the late 1980s for Merrill Lynch. They later went their own ways with Ross creating his own

broker-dealer In financial services, a broker-dealer is a natural person, company or other organization that engages in the business of trading securities for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and ...

firm, Licent Capital while Capasse moved to the

Macquarie Group Macquarie Group Limited (), more commonly known as Macquarie Bank, is an Australian multinational investment banking and financial services group headquartered in Sydney and listed on the ASX (). Macquarie's investment banking division is Au ...

managing the principal finance group. In late 2004, Ross called Capasse with an idea to start their own firm, Waterfall Asset Management. They connected with boutique asset management firm, M.D. Sass to launch its first fund, the Waterfall Eden Fund which targeted residential mortgages and home equity ABS. During this time ABS deals became publicly traded and by 2007

private placement Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Generally, these investors include frien ...

s had given way to the securitization market. When the

subprime mortgage crisis The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...

occurred, Waterfall was able to take advantage as Capasse and Ross were able to structure private placement deals in a new manner. Waterfall made use of principal reduction for mortgages which were was rarely used by its peers. The best opportunities for Waterfall were found in ABS securities that were once had a

credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government). It is the practice of predicting or forecasting the ability of a supposed debtor to pay back the debt or default. The ...

of AAA but later downgraded to junk status. By 2012, Waterfall had become known as a big buyer of distressed single-family home mortgages. To support its effort, it formed a venture with

Coldwell Banker Coldwell Banker Real Estate LLC is an American real estate franchise owned by Anywhere Real Estate, with headquarters in Madison, New Jersey. It was founded in 1906 in San Francisco, and has approximately 3000 offices in 49 countries and terri ...

Commercial named Coldwell Banker Commercial Alliance. Waterfall would buy distressed commercial real-estate assets and the venture would will sell and lease the properties. The leasing deals would be under 100,000 square feet and sales valued at $10 million or less. Waterfall moved away from a traditional hedge fund structure to become more like an

asset management company An asset management company is an asset management / investment management company/firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives. For a fee, the company/firm provides more dive ...

. Apart from the hedge funds it managed, it also dealt in the

separately managed account In the investment management industry, a separately managed account (SMA) is any of several different types of investment accounts. For example, an SMA may be an individual managed investment account; these are often offered by a brokerage firm t ...

business as well as private equity. By offering a wider product offering, it was able to attract mandats from

pension fund A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...

s and retirement plans. In 2013, Ready Capital was founded by Waterfall converting one of its private funds to a commercial mortgage

REIT A real estate investment trust (REIT, pronounced "reet") is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of real estate, including office and apartment buildings, studios, warehouses, hos ...

and listing it on the

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

under the ticker 'RC'. It is a real estate finance company that deals in small to medium balance commercial loans. Waterfall currently is its external manager. In July 2013, Dyal Capital acquired a

minority interest In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than ...

in Waterfall from M.D. Sass-Macquarie Financial Strategies, a

joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to acce ...

between M.D. Sass and Macquarie Group that invests in investment funds. In November 2018, Waterfall issued $571.8 Million in

jumbo Jumbo (December 25, 1860 – September 15, 1885), also known as Jumbo the Elephant and Jumbo the Circus Elephant, was a 19th-century male African bush elephant born in Sudan. Jumbo was exported to Jardin des Plantes, a zoo in Paris, and then tr ...

reverse mortgage A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthl ...

bonds, the first offering of its kind since the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

. In August 2020,

Navigator Global Investments Navigator Global Investments (NGI) is an Australian alternative investment management company headquartered in Toowong, Brisbane. It has been publicly traded on the Australian Securities Exchange (ASX) since 2006. Background The company was o ...

(NGI) agreed to buy Dyal Capital's stake in Waterfall. The deal was done in two parts with the second part being after 2025 where NGI will purchase the remainder of Dyal Capital's interest. In November 2020, Waterfall agreed to acquire Alternative Credit Investments for £639m in cash.

References

External links

* {{Hedge funds 2005 establishments in New York City Alternative investment management companies American companies established in 2005 Companies based in New York City Financial services companies based in New York City Financial services companies established in 2005 Hedge fund firms in New York City Asset management companies