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Alternative Market Briefing

Student loans, mortgages, regulation offering opportunity for credit hedge funds

Monday, May 13, 2013

Bailey McCann, Opalesque New York:

First it was mortgages, now student loans are gaining the attention of hedge funds focused on finding returns in credit. Student loan debt which is hitting all time highs as tuition increases and more people get advanced degrees hoping for a better job market when they emerge from school. However, the rate of student loan default is also on the rise as the job market hasn't been all that welcoming to recent graduates. Taken together, some funds are eyeing a new opportunity set - shorting student debt.

"The growth in the student loan sector has been growing since the crisis. Without any new subprime mortgage origination, there is now more student loan debt outstanding than subprime mortgage," says Chris Hentemann, Managing Partner at New York-based 400 Capital, a credit focused hedge fund. He spoke with Opalesque after speaking on a panel during the Skybridge Alternatives (SALT) Conference in Las Vegas.

"We learned from the subprime crisis that homeownership is a privilege not a right. The same may be true with education as the price of that asset keeps going up. Who can manage that debt?" Hentemann says. "The current employment environment is not absorbing the new graduates and we are seeing that borrowers are not finding the jobs needed to repay the debt. You can see a correction occurring as delinquencies and defaults rise."

Sallie Mae, one of the largest providers ......................

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