Ex-Dalton’s Sherer, Gaughan Start Mortgage Fund

Todd Sherer and Christopher Gaughan, former managing directors at Dalton Investments LLC, started Illumination Asset Management LLC, a Los Angeles-based mortgage hedge fund, yesterday with $200 million in assets.

“It was a chance to set our own course,” Sherer, 41, chief investment officer at Illumination, said in a telephone interview. “When we looked at the opportunity set, we thought it was one we could continue to take advantage of.”

The IAM Credit Opportunities Fund will focus on residential mortgage-backed securities that lack U.S. government backing, which Sherer also traded at Dalton, he said. It will also invest in those with government backing, commercial mortgage-backed securities, collateralized debt obligations and other forms of structured credit.

Because the number of firms in non-agency residential mortgages has increased, Sherer decided Illumination should also trade mortgage bonds backed by the government, a lesssaturated market, he said.

“There definitely have been a significant number of mortgage launches, and one reason we’re expanding into agencies is that that’s one of the areas where there’s still new production,” he said.

Read more>>

Bloomberg BRIEF Newsletters