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LibreMax Capital, llc
Third Quarter 2012 Investor Letter
November 19, 2012
Dear Investor,
We are pleased to report LibreMax Partners, LP returned 8.17% during the quarter. At the time of this writing
our firm AUM is in excess of $2.3 billion.
HIGHLIGHTS
LibreMax Partners, LP returned 8.17% net during the quarter.
Securitized products pricing strengthened in the quarter, with synthetic RMBS indices outperforming
•
most markets.
•
Broader markets enjoyed robust gains throughout the third quarter. The announcement of the
Outright Monetary Transactions (“OMT”) program by the ECB and the onset of QE3 by the US Fed
•
sparked a market reversal that began in June and continued throughout the quarter.
3Q12 RESULTS & COMMENTARY
EXHIBIT 1: MONTHLY AND QUARTERLY NET RETURNS FOR LIBREMAX AND SELECT INDICES
LibreMax Partners, LP 2.76% 2.75% 2.45%
Monthly Performance Jul-12 Aug-12 Sep-12 3Q12 YTD ITD
LibreMax Offshore Fund, Ltd. 2.76% 2.75% 2.45%
8.17% 15.98% 23.23%
Merrill Lynch High Yield Cash Pay Index 1.93% 1.18% 1.40%
8.17% 15.98% 23.24%
S&P 500 Index 1.26% 1.98% 2.42%
4.58% 11.91% 20.44%
Note: LibreMax fund returns are net of all fees and expenses in the 2%/20% fee structure. Past performance is no guarantee of future returns. An investor cannot invest directly in an
5.76% 14.56% 26.24%
index. Please see all disclosures at the end of this document. ITD reflects total cumulative return since inception date of 10/1/2010.
Market Commentary: The S&P 500 Index was up 5.8% in the quarter, while the Merrill Lynch High Yield
Cash Pay Index gained 4.6%. The strong performance of the ABX in early in 2012 was renewed as strong
gains were recorded each month, up 18.2% in the quarter (Exhibit 2). The volume of cash RMBS trading
remained robust. Maiden Lane III auctions were completed during the quarter. As these all-or-none lists were
met with strong demand, multiple market participants copied the government’s successful strategy. The
resultant execution supported strong pricing and led to a wide dissemination of previously concentrated
holdings as dealers successfully distributed positions.
Fund Commentary: LibreMax Partners, LP was up 8.17% in the quarter, with roughly equal gains each
month. Mark-to-market gains on our longs, realized trading, and payments all contributed to returns. The
quarter was marked by strong and broad investor demand for securitized products. Mortgage indices
outperformed cash securities (Exhibit 2), though RMBS cash generally outperformed other collateral types. In
a broad-based rally, certain security types such as option ARM super seniors, CMBS AJs and new issue
subordinates, and subprime seasoned mezzanine exhibited the strongest gains.
LibreMax benefited from gains in all sectors, with the largest portfolio increases attributable to subprime
(Exhibit 3). During the quarter, we decreased exposure to subprime and increased allocations to CMBS, CLO,
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and consumer ABS (Exhibit 4).
EXHIBIT 2: ABX INDEX COMPS RETURNS
ABX AA CDSI S6-1 6.2% 5.5% 9.0% 22.1% 58.6% 12.9%
Monthly Performance Jul-12 Aug-12 Sep-12 3Q12 YTD ITD
ABX AAA CDSI S6-2 6.0% 3.0% 5.4% 15.1% 34.6% -0.8%
ABX AAA CDSI S7-1 5.8% 2.0% 8.7% 17.4% 38.7% -2.5%
6.0% 3.5% 7.7% 18.2% 43.9% 3.2%
Source: Bloomberg, Markit. The ABX indices included for comparison contain securities that are similar in vintage and capital structure to the majority of our current holdings. An
Average of Above ABX Indices
index does not have fees and expenses associated with a fund and an investor cannot invest directly in an index. See disclosures at the end of this letter for a description of the ABX
indices. ITD represents performance from 10/1/2010 through 9/30/2012.
EXHIBIT 3: LIBREMAX MASTER FUND THIRD QUARTER 2012 GROSS RETURN ATTRIBUTION
Prime/Alt-A/POA Mortgages 0.35% 0.48% 1.21% 2.04%
Payments Realized MTM Total P&L
Subprime Mortgages 0.55% 1.45% 3.83% 5.83%
Manufactured Housing 0.12% 0.03% 0.31% 0.46%
Consumer ABS 0.38% 0.23% -0.11% 0.49%
CLO/CDO 1.05% 0.38% 0.79% 2.21%
CMBS 0.20% 0.42% 0.51% 1.13%
Hedges -0.08% -1.46% 0.03% -1.52%
Cash 0.00% 0.00% 0.00% 0.00%
*1Q2012 payment data restated on June 1, 2012. Please see disclosures for additional information.
Grand Total 2.56% 1.52% 6.57% 10.65%
Source: LibreMax Master Fund. Return attribution is gross of fees and expenses associated with an investment in the fund. The inclusion of such fees and expenses would reduce
returns.
EXHIBIT 4: LIBREMAX MASTER FUND MONTH-END LONG PORTFOLIO ALLOCATION HISTORY
4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
Prime/Alt-A/POA Mortgages 12% 24% 31% 30% 25% 19% 18% 17% 17% 16%
Subprime Mortgages 64% 50% 44% 43% 38% 40% 37% 39% 37% 35%
12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 7/31/12 8/31/12 9/30/12
Manufactured Housing 14% 4% 4% 6% 11% 8% 6% 6% 5% 5%
Consumer ABS 4% 17% 15% 19% 17% 12% 17% 17% 18% 19%
CLO/CDO 6% 5% 6% 3% 9% 13% 10% 8% 10% 11%
CMBS 0% 0% 0% 0% 0% 9% 13% 13% 13% 15%
Source: LibreMax Capital, LLC. Percentage allocations are rounded. Quarters and months shown represent portfolio allocations on the last day of each period. See disclosures at the
end of this letter for a description of sectors.
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EXHIBIT 5: LIBREMAX MASTER FUND MONTH-END LONG PORTFOLIO ALLOCATION OCT 2010 – SEP 2012
100%
CMBS
90%
CLO/CDO
80%
70% CONSUMER ABS
60% MANUFACTURED HOUSING
50%
40% SUBPRIME
30%
20%
10% PRIME/ALT-A/POA
0%
Apr-11
Apr-12
Feb-11
Sep-11
Feb-12
Sep-12
Jun-11
Jun-12
Jul-11
Jul-12
Mar-11
Mar-12
Dec-10
Dec-11
Oct-10
Oct-11
Aug-11
Aug-12
Nov-10
Jan-11
Nov-11
Jan-12
May-11
May-12
Source: LibreMax Capital, LLC.
Listed below are various index performances since October 2010, the inception date of LibreMax Partners, LP
(Exhibit 6). The three ABX indices included contain securities that are most similar in vintage and capital
structure to our current subprime holdings.
EXHIBIT 6: LIBREMAX PARTNERS, LP CUMULATIVE MONTHLY RETURNS ITD VERSUS VARIOUS INDICES
30%
26.24% S&P 500 Index
23.23% LibreMax Partners, LP
20%
20.44% ML HY Cash Pay Index
10% 12.87% ABX AA CDSI S6-1
Cumulative Returns
0% -0.84% ABX AAA CDSI S6-2
-2.55% ABX AAA CDSI S7-1
-10%
-20%
-30%
-40%
1-Jul-11
1-Jul-12
1-Feb-11
1-Sep-11
1-Feb-12
1-Sep-12
1-Jan-11
1-Jan-12
1-Dec-10
1-Dec-11
1-Jun-11
1-Jun-12
1-Aug-11
1-Aug-12
1-May-11
1-May-12
1-Oct-10
1-Oct-11
1-Oct-12
1-Nov-10
1-Nov-11
1-Apr-11
1-Apr-12
1-Mar-11
1-Mar-12
Source: Bloomberg and LibreMax Partners, LP results. LibreMax Partners Returns are net of fees and expenses. Performance is calculated at month-end. An index does not include fees
and expenses associated with an investment in a fund. An investor cannot invest directly in an index. See disclosures at the end of this letter for a description of each index.
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INDUSTRY HIGHLIGHT: CMBS
As much as the Fed’s QE3 announcement in September has demonstrated the potential to positively affect the
RMBS market, residential lending remains constrained. By contrast, quantitative easing has had, and will
continue to have, a meaningful impact on commercial lending, as lower rates improve borrowers’ ability to
refinance across property types. Cap rates have steadily trended lower, but have not kept pace with the
tightening of treasury and swap rates, resulting in the largest cap spreads in over 30 years.
The new issue CMBS market has experienced very strong execution over the past several months, with $28.5
billion in issuance during the first three quarters of 2012 1. The steady tightening of asset spreads and
demand from real money investors down the capital structure have resulted in securitization lending, with its
greater leverage, to become increasingly competitive with portfolio lenders.
Other forms of CRE finance are emerging. One example is pari-passu loans, whereby large loans are carved up
and distributed amongst multiple securitizations. Since the crisis, lenders have been reluctant to warehouse
loans between $100 million and $350 million (too small for single-asset deals and too large for pooled deals)
as the new issue pipeline had been irregular and uncertain. With the increased liquidity in the CMBS market,
lenders are now more confident that regular issuance is sustainable. CRE CDOs backed by mezzanine loans
have also emerged, which have the potential to inject more leverage than what is available through CMBS.
These deals could greatly improve the refinancing options for legacy loans, a further boon to the CMBS
market.
The potential for a negative outcome of the maturity wall of 2007’s 5-year loans has been significantly
mitigated as the majority of those loans have been able to refinance. Through the first three quarters of the
year, over $30 billion of CMBS loans have paid off while $11 billion have been liquidated. Another $60 billion
of conduit loans are due to mature through 2013, with average coupons more than 150bps higher than the
current market 2.
The Fed’s commitment to sustained lower rates has had a profound technical effect on the securitized
products market as investors continue to seek yield that exceeds other alternatives. In addition, lower cap
rates and lower loan spreads should bolster fundamentals, due to easier avenues to refinancing and therefore
likely lower losses. However, on the lending front, increased liquidity and leverage often lead to greater risk.
There is already an increasing potential for the relaxation of underwriting standards, with the first examples
of pro-forma underwriting creeping into 3.0 CMBS deals. While loose underwriting could help the
performance of existing securitizations, it will also add a degree of risk to the new issue market.
Understanding and assessing servicer behavior is another point of focus, with implications in the new issue as
well as secondary markets.
While we are constructive on the CRE market overall and excited about the opportunities in the CMBS credit
space, asset selection has become more important than ever. While loan level due diligence is of the utmost
importance, broader property type trends are important to note, as structural and regional changes in the
economy and property markets are the biggest drivers of demand and performance. Below is a summary of
our views on the major commercial property types.
1
J.P. Morgan Research, “US Fixed Income Markets Weekly”, November 16, 2012
2
Deutsche Bank Research, “The Outlook in MBS and Securitized Products”, September 19, 2012
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Multifamily: The Multifamily sector has benefited from growing demand and diminished supply.
From a demand perspective, the declining homeownership rate from peak levels near 69.2% in 2004
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to just 65.6% today 3 has boosted the renting population. On the supply side, construction has
dramatically dropped in the last several years. Between 2003 and 2006, multifamily starts averaged
2 million annually, whereas average starts were just 872,000 between 2009 and 2012. The end result
is historically low vacancy rates driving higher rents and boosting Net Operating Income (“NOI”).
Office: Space absorption in the office sector is highly correlated with nonfarm payrolls, so the steady
growth in jobs since the economy bottomed has translated to declining vacancies. However, the office
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markets remain sensitive to geography and building quality. Class A assets in primary locations have
witnessed a strong return in demand, whereas class B and C properties in secondary locations have
lagged. Major markets are only 14% below peak values whereas non-major markets are still 28%
below peak prices 4. The residual weakness in space demand from the last several years is manifest in
rising delinquencies as leases roll and rents are marked to market lower. Therefore, the risks and
opportunities in the office sector are idiosyncratic and must be assessed on a granular basis.
Hotel: Lodging fundamentals turned positive in May 2010 and have been on a multi-year recovery
that has benefited from limited supply and rebounding demand growth, as tourism has approached
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pre-crisis levels. Since the poorly timed construction spike in 2008 and 2009, limited additional
supply has contributed to healthy gains in both occupancy and average daily room rates. Average
annual new supply of 1% from 2010 to 2013 is trending well below the long-term average of 1.9% 5.
This has resulted in revenue growth rates of 5.8% and 9.0% in 2010 and 2011, respectively, which in
turn has translated into robust growth in net operating income and strong performance in the sector
overall.
Retail: While fundamentals in the retail space enjoy some of the positive technicals of other sectors,
dispersion in performance and shifting demand due to e-commerce are expected to generate ongoing
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distress. Closures related to e-commerce are putting big blocks of space on the market. Another
concerning trend is increased tiering based on location and among different forms of retail centers.
Prime locations in markets with strong demographics and high density have seen strong demand
from retailers while secondary and tertiary locations have continued to experience decreasing rents
and increasing vacancies. Within retail centers, tiering is most starkly evident in malls. Default
resolution of underperforming malls are some of the largest losses in the CMBS universe. In 2012,
retail is leading all property types with an average liquidation severity of 53% 6 largely due to “dead
malls”. Overall, we are concerned about high retail exposure and are strategically avoiding
transactions with high retail concentrations.
HOUSING OVERVIEW
Home prices continued to rise for the month of August, with the S&P/Case-Shiller 20-City Composite Index up
0.9% on a month-over-month basis. 19 out of 20 cities exhibited positive gains (Seattle experienced a
minimal decline of 0.1%) breaking a three month trend of all cities in positive territory. The 20-City
Composite Index has risen 6.8% YTD (non-seasonally adjusted), compared to +0.4% YTD at the same time
3
The US Census Bureau
4
Moody’s Commercial Property Price Index (“CPPI”)
5
Property & Portfolio Research, Inc. (“PPR”)
6
Intex Solutions
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last year.
On a year-over-year basis, a strong positive trend in housing fundamentals has begun to emerge. The 20-City
Composite Index was up 2.0% year-over-year and 17 out of 20 cities reported positive price appreciation in
August. In contrast, 19 of 20 cities posted negative year-over-year returns in December 2011.
EXHIBIT 7: SELECTED HOME PRICE DATA JUNE 2006 – AUGUST 2012
110
100
90 TX-Dallas
NY-New York
Composite-20
80 MI-Detroit
CA-Los Angeles
FL-Miami
70
AZ-Phoenix
60
50
40
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Source: Standard & Poor’s / Case-Shiller. All prices standardized at index of 100 starting June 2006. Composite 20 is the average of the top 20 U.S. metro areas.
The continued improvement in home prices is supported by the limited supply of existing and new homes for
sale, declining shadow inventory, and increasing demand from both new household formations and investors.
Existing inventory of homes for sale declined by 3% in September and by 20% year-over-year 7. On a
granular level, the cities that have shown the largest year-over-year declines in inventory 8 are San
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Francisco (-49%), Los Angeles (-34%), San Diego (-34%), Seattle (-33%), and Atlanta (-30%). There
were no cities with year-over-year increases of existing inventory.
Shadow inventory has been a major driver of HPI in recent years. This inventory has shown a
significant decline since peaking in 2010, albeit at a slower pace in judicial states. As a result, the
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percentage of distressed sales are expected to decline over time, especially in non-judicial states,
resulting in shorter timelines and ultimately lower loss severities.
New household formations have continued to support the housing market, as approximately 1.15
million new households were created in the 12 months ending in September (Exhibit 9). This is
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significantly above the 570,000 average annual household increases between 2007 and 2011. As
employment improves, we expect to see further increases in household formation.
7
National Association of Realtors
8
Department of Numbers, Citi Research, “Inventory-Based HPA Estimates”, October 29, 2012
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EXHIBIT 8: INVENTORY OF EXISTING HOMES CONTINUES TO DECLINE
Sep 2012
2.32 million
Source: NAR, LibreMax Capital
EXHIBIT 9: HOUSEHOLD FORMATION YEAR-OVER-YEAR CHANGE
2,500
2,000
Household Formation YoY (thousands)
1,500
Thousands (Monthly)
1,000
500
0
-500
Source: US Census Bureau, Citi Research
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Although HPI growth has been strong in the spring and summer of this year, our forecast is that HPI will ease
and modestly decline again in early 2013. We estimate a 1% decline from the current (August) level by April
2013. From this nadir, our updated forecast projects another strong spring and summer season in 2013. We
forecast the following 12 months (through April 2014) to be +3.8% and the subsequent three 12 month
periods ending in April to be +4.7% (2015), +4.6% (2016) and +5.0% (2017).
HOUSING COLLATERAL PERFORMANCE
Overall, collateral performance continues to improve. Below are some highlights:
Always-current-to-delinquent roll rates continue to improve, especially in subprime loans,
reinforcing the credit burnout story.
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Lower price homes have exhibited the greatest improvement in performance as the lower price tier
cohort has the largest rise in the “current-for-12-consecutive-months” bucket [Exhibit 10].
•
Despite marginal increases in liquidation timelines, subprime loss severities continue to trend
downward given lower servicer advance rates and an improving housing market. Liquidation speeds
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have showed signs of slowing given decreasing REO percentages as many loans remain backlogged in
foreclosure. This has resulted in larger percentages of short sales. Option ARM collateral has
exhibited the largest slow down in liquidation speeds.
Prepayment speeds have marginally increased as some borrowers with improved credit gain access
to generational low mortgage rates. This trend is more pronounced in Alt-A and prime fixed rate
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mortgages, but also appears throughout the non-agency and subprime sectors.
Principal forgiveness modifications have been steadily on the rise, supporting lower re-default rates
in the future.
•
We observe notable improvements in pipeline liquidations in non-judicial states such as Arizona and
California. Delinquent-to-liquidation roll rates in the non-judicial states have recently been reported
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in the 5 to 7% range versus judicial states in the 1% to 2% range.
Conversely, large backlogs of foreclosed properties in judicial states remain in the pipeline, extending
timelines and applying pressure to loss severities upon liquidation. Given recent changes in
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foreclosure proceedings combined with limited resources in many judicial states, we don’t expect to
see near-term improvement in delinquent-to-liquidation roll-rates in these states.
EXHIBIT 10: LOWER PRICED HOMES PERFORMED BETTER BY 12-MONTH ALWAYS CURRENT RATE
100%
90%
80% >1MM
600K-1MM
70%
300K-600K
60%
<=100K
50%
100K-300K
40%
Source: DB Global Market Research
EXHIBIT 11: SHORT SALES AS A PERCENTAGE OF LIQUIDATED LOANS
70%
Prime Fix
60%
Prime ARM
50% Alt-A ARM
Option ARM
40% Alt-A Fix
Subprime
30%
Dec-11
Aug-12
Oct-11
Apr-12
Nov-11
May-12
Jan-12
Feb-12
Sep-12
Mar-12
Jun-12
Jul-12
Source: vintage >=2005 only, Loan Performance, Nomura Research
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EXHIBIT 12: PERCENT PRINCIPAL MODIFICATIONS
70%
Option ARM
60%
Subprime
50%
Alt-A
40%
Prime
30%
20%
10%
0%
Apr-12
Feb-12
Sep-12
Jun-12
Jul-12
Mar-12
Dec-11
Oct-11
Aug-12
Nov-11
Jan-12
May-12
Source: Loan Performance, Nomura Research, vintage >=2005 only
EXHIBIT 13: LIQUIDATION TIMELINE BY STATE
50
Months DQ of liquidated loans
40 NY
FL
30 Average
CA
20 AZ
10
Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
Source: CoreLogic, Nomura Securities International Research
OUTLOOK
We increased our reported gross and net exposure throughout the quarter, as broader markets rallied. This
risk reversal in June was sparked by the ECB’s recent proposal (the OMT program) to solve the European
sovereign crisis combined with Fed Chairman Bernanke’s own moves to help catalyze faster economic growth
in the US. In September and October, increases in our gross exposure were generally driven by securities that
we perceive to be of shorter duration and possess less price volatility than much of our portfolio. Therefore,
by our calculations, our beta adjusted net exposure has recently declined.
Early September witnessed a substantial rally as the S&P jumped 60 points. Weakening economic data,
renewed fears about the Eurozone, and select adverse corporate news flow ushered in a new period of risk-
off, with the S&P losing nearly half its monthly gain. Losses continued in October and early November.
We have positioned the portfolio more conservatively as a combination of concerns related to the US
presidential election, the fiscal cliff, a renewal of tension in the Eurozone, and most recently the uncertain
economic effects of Hurricane Sandy give us caution. We remain bullish on the relative prospects for
securitized products. After multiple years of underperformance, we believe the outperformance of housing,
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compared to other economic data in 2012, heralds the beginning of a multi-year relative trend regardless of
the strength of the US economy. While we still see tremendous value in RMBS, we have also been able to
source several large opportunities in shorter duration non-mortgage backed bonds.
ORGANIZATIONAL UPDATE
Ross Lesnick, formerly with Fir Tree Partners, joined us as our new CFO in August 2012. In addition, Jack
Zhou, who recently received a MS in Computer Science from Columbia University, joined our risk team as a
quantitative analyst. We continue to evaluate staff additions and may make additional hires over the next
three to six months.
As we crossed our two year anniversary since the Fund’s launch on October 1, 2010, we are proud to share
some firm highlights at the time of this writing:
Annualized net return since inception of 11.7%.
Profitable in 22 of 25 months.
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Headcount has increased from 15 to 24 people, with the majority of new hires in the Quantitative
•
Risk and Investment teams. In particular, the Quantitative Risk team has tripled to six people.
•
• AUM has grown steadily and is now $2.3 billion.
We welcome any feedback and are available should you have any questions.
Thank you for your continued support.
Sincerely,
Greg Lippmann
Chief Investment Officer
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LibreMax Capital, llc
APPENDIX A: LIBREMAX MASTER FUND – PORTFOLIO BREAKDOWN BY PRICE
24%
22%
20%
% OF INVESTED FUND ASSETS
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
DOLLAR PRICE
Source: LibreMax Master Fund portfolio, prices as of 9/30/12.
APPENDIX B: LIBREMAX MASTER FUND PORTFOLIO HOLDINGS BY ORIGINAL AND CURRENT
ORIGINAL RATING CURRENT RATING
C D
B 0.8% BB 0.8% 5.8% 1.7%
BBB
10.8%
CC
12.5% NR
22.8%
NR 17.8%
A 6.3% A
AAA 52.3% 2.8%
BBB
CCC 7.9%
35.5% B
7.1%
AA 11.2% BB
3.8%
Source: LibreMax Master Fund portfolio as of 9/30/12 and Moody’s/S&P ratings, standardized and presented as S&P ratings. Securities with no current rating are assigned an implied
rating based on LibreMax calculations.
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Legal Disclaimers
This document contains general information on LibreMax Partners, LP (the “Domestic Fund”) and LibreMax Offshore Fund, Ltd. (the “Offshore Fund” and together with the Domestic
Fund, the “Funds”) which are managed by LibreMax Capital, LLC (“LibreMax”). The Funds invest substantially all of their assets in the LibreMax Master Fund, Ltd. (the “Master Fund”).
This document, which is being provided on a confidential basis, is not an offer to sell nor a solicitation of an offer to purchase interests of either Fund. Offers and sales of interests in a
Fund may only be made in those jurisdictions permitted by law and once a qualified offeree receives a confidential private offering memorandum or confidential explanatory
memorandum (each, a “Memorandum”) (including investment objectives, policies, risk factors, fees, tax implications and relevant qualifications), complete documentation of such
Fund and in accordance with the applicable securities laws, and this presentation is qualified in its entirety by reference to such documentation. In the case of any inconsistency
between the descriptions or terms in this document and either Memorandum, the Memorandum shall control. LibreMax reserves the right to change any terms of the offering at any
time. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction
have been satisfied.
While all the information prepared in this document is believed to be accurate, LibreMax makes no express warranty as to the completeness or accuracy of such information, nor can it
accept responsibility for errors appearing in the document.
This document is strictly confidential and intended exclusively for the use of the person to whom it was delivered by LibreMax. This document may not be reproduced or redistributed
in whole or in part. Notwithstanding the foregoing, an investor may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Funds and
all materials of any kind (including opinions or other tax analysis) that are provided to an investor relating to such tax treatment and tax structure.
An investment in either Fund is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors
may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The Master Fund’s portfolio, which is under the sole
trading authority of LibreMax, is a credit strategy with a focus on securitized products and this lack of diversification may result in higher risk. A portion of the trades executed may
take place on non-U.S. Exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment, unless it
is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other
investment alternatives and may offset profits. The Fund commenced operations in October 2010 and therefore has a limited operating history.
There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the Funds should not be construed as an indicator of future performance. Any
projections, market outlooks or estimates in this document are forward looking statements and are based upon certain assumptions. Other events which were not taken into account
may occur and may significantly affect the returns or performance of the Funds. Due to market risks and uncertainties, any projections, outlooks or assumptions should not be
construed to be indicative of the actual events which will occur.
The LibreMax housing model is a proprietary housing forecast model that projects housing prices based on external market data and housing analysis and internal housing
assumptions and accordingly should not be construed to be indicative of the actual events which will occur.
Unless otherwise noted, all portfolio statistical information shown is for the Master Fund and is unaudited. Sector allocations are expressed as a percentage of total investments and
Portfolio Statistics
may vary over time and cash, cash equivalents, hedging and interest rate instruments are excluded. Holdings information is provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities listed.
Unless otherwise noted, all portfolio statistical information shown is for the Master Fund and is unaudited. Portfolio Sector Attribution is gross of fees and expenses. Portfolio
Allocations are expressed as a percentage of total core investments and exclude cash, cash equivalents and hedges. CMBS includes CDOs comprised of CMBS collateral. CLO/CDOs may
include CDOs whose collateral is comprised of non-agency RMBS securities, including Subprime, as well as ABS. Portfolio Allocation is subject to change and may vary over time.
Holdings information is provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities listed. Gross return attribution
Payments data in Exhibit 3 first published on May 14, 2012 included MTM performance and was corrected on June 1, 2012. Prior incorrect payment statistics shown were Prime/Alt-
A/POA Mortgages 1.69%, Subprime Mortgages 3.13%, Manufactured Housing 0.48%, Consumer ABS 0.64%, CLO/CDO 0.92%, CMBS 0.19%, Hedges -1.70%, Cash, 0.00%, Grand Total
5.36%.
Performance shown is unaudited and net of all fees and expenses, including brokerage and other commissions and dividends and interest are reinvested. The net of fee returns reflect
Fund Net Performance
the deduction of a monthly management fee calculated at an annual rate of 2.0% and a 20% annual incentive allocation, calculated based on an investment at the inception of the
Funds. Certain investors may have different fee arrangements or investment dates and therefore their investment performance may be different from the net performance stated
herein.
A quarterly transparency report prepared by the Fund’s administrator, International Fund Services (N.A.), LLC, is available to all investors on IntraLinks or can be provided upon
Fund Reporting
request. In addition, 2012 investor level tax estimates as of September 30, 2012 are also available upon request.
Payments represent the percentage of accrued coupon interest, net gains or losses on principal paydowns and financing costs during the period to the Master Fund’s gross total return
Definitions
exclusive of fees and expenses of the Fund and the Master Fund, as well as management fees and incentive allocations (“the Gross Return”).
Realized represents the percentage of net realized gains or losses on the disposition of portfolio positions to the Gross Return.
MTM represents the percentage of net marked market to market gains or losses on the portfolio positions to the Gross Return.
Total represents the percentage of total net gains and losses on the portfolio positions to the Gross Return.
The S&P Index and Merrill Lynch High Yield Cash Pay Index are well known indices and are included merely to show the general trend in the equity and credit markets during the
periods indicated; the Funds will not be comparable to the indices in composition or element of risk. An index does not have fees and expenses associated with a fund and an investor
cannot invest directly in an index.
The Markit ABX family of indices represents a standardized basket of home equity ABS reference obligations. It is constituted from reference obligations backed by twenty issuers of
residential mortgage backed securities with six sub-indexes, each consisting of one security of each such issuer having a specified Applicable Rating and with respect to date of
issuance.
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