While Warren Buffett gets all the press, a number of legendary investors fly under the radar screen, unknown to most individual investors and many professionals as well.
One such legend, Wilbur Ross, has an incredible track record as a “vulture capitalist”, meaning he buys businesses and investments that are in trouble, turns them around and makes millions each time he performs his magic.
Until recently, only ultra high net worth investors could participate alongside Mr. Ross, as his company was privately held. INVESCO (NYSE:IVZ) acquired WL Ross & Co. in 2006. INVESCO now offers several ways to potentially benefit from Mr. Ross’s skill.
One such investment recently had an IPO as a publically traded REIT, INVESCO Mortgage Capital REIT (NYSE:IVR). It invests in RMBS, CMBS and mortgage loans in conjunction to financing through PPIP and TALF where possible. All of these acronyms are defined at the end of this article.
(IVR) is managed by an institutional arm of INVESCO. WL Ross & Co. consults with the management of (IVR).
(IVR) has fully invested the proceeds received from the IPO and has applied for loans to buy CMBS through the TALF program. It is still exploring opportunities to invest through PIPP.
(IVR) was launched on 6/26/2009 at an IPO price of $20. As of 8/29/09 it is trading at $20.01. It has mostly traded below its IPO price and volume is averaging 102,000 shares a day.
While REITs have rallied recently and are now potentially overvalued, buying into IVR is an opportunity to get in on the ground floor vs. a potentially dangerous upper balcony!
Investors looking for a way to profit from the carnage that has taken place since the U.S. financial markets imploded in the fall of 2008 would be wise to consider an investment in (IVR).
I recommend starting with a 1% position in (IVR) and then slowly adding to it as the REIT confirms its increased participation in the various U.S. Government sponsored programs.
INFORMATION ON U.S. GOVERNMENT LOAN PROGRAMS
Residential Mortgage-Backed Security (NASDAQ:RMBS): A type of security whose cash flows come from residential debt such as mortgages, home-equity loans and subprime mortgages. This is a type of mortgage-backed securities that focuses on residential instead of commercial debt. Holders of an RMBS receive interest and principal payments that come from the holders of the residential debt.
Commercial Mortgage-Backed Securities (NYSEARCA:CMBS): A type of mortgage-backed security that is secured by the loan on a commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders. As with other types of MBS, the increased use of CMBS can be attributable to the rapid rise in real estate prices over the years. Because they are not standardized, there are a lot of details associated CMBS that make them difficult to value. However, when compared to a residential mortgage-backed security (RMBS), a CMBS provides a lower degree of prepayment risk because commercial mortgages are most often set for a fixed term.
Public-Private Investment Program (PPIP): A plan designed to value and remove troubled assets from the balance sheet of troubled financial institutions in the U.S.Essentially, thePublic-Private Investment Program's goal is to create partnerships with private investors to buy toxic assets. The program is designed to increase liquidity in the market and to serve as a price-discovery tool for valuing troubled assets. The Public-Private Investment Program consists mainly of two parts: a Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program uses FDIC-guaranteed debt along with private equity to purchase troubled loans from banks. On the other hand, the Legacy Securities Program is designed to use funds from the Federal Reserve, Treasury and private investors to reignite the market for legacy securities. Legacy securities include certain mortgage-backed securities, asset-backed securities and other securitized assets that the government deems to be eligible for the program.
Term Asset-Backed Securities Loan Facility (TALF): A program created by the U.S. Federal Reserve in November, 2008 to boost consumer spending to help jumpstart the economy. This is accomplished through the issuance of asset-backed securities. The collateral for these securities is made up of student, personal auto and credit card loans. Backing for these loans comes from the (up to) $1 trillion provided by the New York Federal Reserve Bank. This program is in place until December, 2009. Issuance of asset-backed securities continues only until that point. If, on that date, the government decides that the economic state has not improved up to an appropriate level, benefits of the plan are to be reassessed.
INFORMATION ABOUT WL Ross & Co.
WL Ross & Co. is acknowledged as one of the world's leading turnaround groups. They invest in and restructure financially distressed companies. Their extensive knowledge, insight and longevity offer a distinct advantage when assessing and cultivating new investment opportunities, particularly in niche markets.
Mr. Ross’s experience in distressed securities dates back to 1976 when he led the worldwide bankruptcy advisory practice at Rothschild Inc. For over a decade, his team assisted in restructuring more than $200 billion in liabilities in major corporate restructurings and bankruptcies in North America.
In 2000, Mr. Ross established his own company with $440 million in investor money. WL Ross & Co. joined INVESCO Ltd. in 2006.
Disclosure: My firm, Wade Financial Group, Inc. is long IVR.