The Fund’s goal is to build a portfolio of quality mortgages that aims to provide income and growth potential to investors. Designed for investments of $1,000 and up, the fund follows the lead of Vertical’s prior offerings and invests primarily in assets of residential performing loans that are secured by first mortgages or deeds of trust.
Group President Bayard Closser said, “One of the real attractions of this investment is it doesn’t correlate closely with equity and most bond markets, and whether equities or real estate go up or down, it essentially doesn’t matter. Through this structure, the fund will own the underlying collateral in the event of a loan default.”
A study by BlackRock Investments, LLC for the period 2001 through 2010 found that the benchmark index for the Vertical Capital Income Fund, the Barclays Capital US MBS Index, has a -0.18 correlation with the S&P 500. A correlation of 1.00 represents an absolute positive correlation between two asset classes, while a correlation of -1.00 represents an absolute negative correlation.
The Fund can potentially reduce risk for investors by increasing diversification, because it has a negative correlation with stocks and other investments. However, no level of diversification can ensure profits or guarantee against losses. Furthermore Vertical is purchasing the loans at a significant discount, so the collateral backing the loans is typically worth more than what Vertical pays for the loans and this is verified with an independent assessment.
In addition, Vertical projects that more than 90% of the loans in the fund are performing loans, and this provides ample room to negotiate lower payments for any troubled homeowners.
“Despite high unemployment and lost home equity, the vast majority of homeowners are still putting their mortgage payments first among the bills they have to pay,” Altuzarra said, adding that Vertical is making headway in its socially responsible goal of “keeping people in their homes.”
Founded in 2004, Vertical Capital Markets Group underwrites, monitors, and services the loans the firm purchases. The principals have more than 60 years of combined experience in the mortgage banking industry. With its network of relationships, Vertical strives to provide moderate, non-correlated products to investors. Vertical believes managing loan portfolios requires sophisticated expertise and that to succeed in this arena, experts like Vertical are needed in this highly specialized marketplace. The company’s wide network of contacts within the banking industry allows the firm to uncover mortgage loan opportunities that other buyers might not find. As loan servicer, Vertical also has access to information not readily available to most institutional investors.
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