EXCERPT:
Carl, explain in a nutshell how this strategy works.
The market for mortgage-backed securities has been the center of the deleveraging storm within global capital markets. Senior mortgage securities are trading at levels that provide very limited downside economic risk with expected returns of 10% to 20% across a wide range of potential scenarios. The Mortgage Recovery approach zeroes in on the most attractive bonds within this universe.

How would you contrast this strategy with a distressed-debt fund?
This strategy is much more targeted than simply buying bonds at a deep discount. It doesn't count on recovery in the economy or credit markets to deliver very attractive returns. Also, the Mortgage Recovery strategy doesn't employ leverage. The expected returns of 10% to 20% are both unlevered and loss-adjusted.

What do you mean by “targeted”?
Mortgage Recovery will focus on shorter-duration bonds at the top of the capital structure in residential and commercial mortgage-backed securities (RMBS and CMBS). Regardless of the recessionís length and severity, these instruments should hold up well due to the seniority of their claims on cash flows.