Ellington Management Group, LLC ~~MBS Investment Company

Business Objective
Ellington pursues a relative value investment strategy with the objective of capturing a stable income stream while minimizing return volatility over time. The Firm holds positions in mortgage-backed and other securities, which are hedged with a variety of instruments, such as interest rate swaps, US treasuries, and options and futures. Ellington utilizes proprietary systems to hedge its positions against changes in interest rates and other market events. In particular, these hedges are designed to counteract the risk of prepayment inherent in its mortgage holdings.

Introduction
Ellington was founded in December 1994 with the Ziff family and Ellington’s six founding partners (the “Founding Partners”) as its initial investors. These Founding Partners had been responsible for creating many of the securities and developing many of the markets that Ellington actively trades today. Ellington manages funds and accounts for both U.S. and non-U.S. investors, employing a variety of investment strategies. Ellington’s core strategies predominantly consist of investments in mortgage-backed securities (MBS), MBS derivatives, and asset-backed securities (ABS). Ellington also pursues other investment strategies including global interest rate arbitrage, emerging markets debt arbitrage, and convertible bond arbitrage. In all cases, Ellington hedges its portfolios with a wide variety of instruments with the objective of protecting them from the effects of changes in interest rates and many other factors. Ellington investors include major pension funds, endowments, foundations, commercial and private banks, family offices, insurance companies and funds of funds. Ellington’s Managing Directors are also significant investors in its strategies, with over $50 million of their capital and deferred compensation invested alongside its clients’ capital.

Ellington’s MBS trading experience and analytical skills are at the industry’s cutting edge as viewed from either the buy or sell side of the market. Prior to forming Ellington, five of the Founding Partners constituted the nucleus of Kidder Peabody’s MBS trading and research group, while one spent ten years at Lehman Brothers where he ran Collateralized Mortgage Obligation (CMO) trading. The six Founding Partners obtained academic training in mathematics and engineering, including three Ph.D.’s and two Master’s degrees. As its funds have expanded their objectives, Ellington has added trading, research and administrative personnel.

Strategy
Ellington pursues a relative value investment strategy with the objective of capturing a stable income stream while minimizing return volatility over time. This strategy relies on Ellington's ability to identify and purchase undervalued securities, and its intensive analytical approach to risk management. Ellington's risk management process emphasizes the proper hedging of portfolio risks. Given the complexity of instruments such as MBS derivatives, this is only possible with sophisticated and precise quantitative tools and methodologies that are the foundation of Ellington's investment technique. Analyzing prepayment risk, in particular, necessitates the development and continuous refinement of sophisticated statistics-based computer models.

Partnerships and Alliances
Ellington has forged valuable strategic partnerships with a number of entities in businesses closely aligned with its operations. For example, Ellington has a joint venture with an entity that services distressed mortgage loans. These types of relationships help provide a stream of assets that would be inaccessible to most investment managers.

Company Profile