Valuethinker, thank you for the sound answers, that makes a lot of sense. It is in fact residential, but the mortgages are bought in pools at a discount and renegotiated to keep home owners in their houses and starting to pay again, at which point they may be resold or kept as a source of liquidity.I happen to think this would be a really interesting niche. I could quite believe there is manager skill in it. Non performing commercial mortgages? Residential I would worry about the ethics of forcing people out (I'd have to get comfortable with that).
But also consider the broader portfolio issues:
- this may, post fees, underperform conventional index investments in bond and equity funds (things like Mortgage REITs, in particular)
- the lower volatility is partly (largely?) an illusion of "marking your own homework" ie the fund manager and the auditor agreeing portfolio valuations each year - this is a well understood feature of these sorts of funds (Clifford Asness has published on this topic if you google around)
- you'll have no liquidity. The fund life can easily be extended because there will be a "tail" of investments they can't sell
- you may create nasty tax filing or other issues for yourself
My guess is there is a tidal wave of non-performing commercial mortgages coming (in fact it's probably already here). Historically these things have taken quite a number of years to work out (but resolutions may be faster, now).
I agree with you that commercial mortgages are probably becoming a big problem, but I'm not sure those would be nearly as good an investment when the tenants may not be as inclined to stay in the properties.
Statistics: Posted by scotbr — Wed Sep 18, 2024 12:13 am — Replies 6 — Views 535