A Very Optimistic Bet on Housing

Ever since the credit crisis, the housing market has been the subject of enormous skepticism. Given the psychological damage caused by a series of financial disasters — the dot-com collapse, the residential real estate boom and bust, the Great Recession, the stock-market collapse — this isn’t a surprise.

Investors, however, need to maintain some emotional distance from these events, lest their biases lead them to missing opportunities. Since I spend so much time discussing how investor behavior has such a negative impact on performance, I would be remiss if I failed to point out when some investors manage to bypass cognitive issues to make a good trade.

One person who hasn’t let his predisposition prevent him from seeing potential upside is Donald Mullen, former global head of credit at Goldman Sachs. He is best known as a leading architect of the bet against the subprime mortgage market, aka “The Big Short.”

Despite being on the right side of the ’00s bet against housing — or perhaps because of it — Mullen has spent the past four years on the other side of the trade. His firm Pretium Partners now has assets under management of about $6.5 billion after raising money for two funds. According to the Wall Street Journal, the firm is now on to its third:

Pretium, which rents and manages its homes under the name Progress Residential, owns the fourth-largest pool of U.S. homes. It is raising money for what would be its third fund dedicated to residential real estate. The first fund, which raised $1.2 billion in 2012, was used to buy more than 16,500 homes at big discounts. In 2014 Pretium raised another $900 million to purchase roughly 14,000 nonperforming home loans.

Because the crash was so traumatic for so many people . . .


Continues at A Case Study in Investing Objectivity