A star trader is out at $12.8 billion LMR Partners after a mortgage-backed securities trade backfires

Core Insights - Andrew Berger, a prominent trader at LMR Partners, has exited the firm following significant losses from a mortgage-backed securities bet, which resulted in a loss of nearly $250 million in 2024 [1][5] - LMR Partners experienced a 0.9% loss in September, making it the only major multistrategy fund to report losses during that month [2][5] - Berger's strategy involved highly leveraged trades in residential mortgage-backed securities (MBS), which ultimately backfired and erased year-to-date gains estimated at over $100 million [3][5] Company Performance - The mortgage-trading team at LMR Partners had a strong performance in 2024 prior to the losses, indicating a volatile trading environment [1][3] - The firm’s loss in September is notable as multistrategy funds typically aim for steady, low-volatility returns by diversifying risk across various markets and strategies [2] Market Dynamics - The unraveling of Berger's trade is attributed to fluctuations in mortgage rates, which do not always align with US Treasury yields, leading to rapid changes in the value of mortgage-backed securities [4] - Changes in borrower behavior, such as refinancing or prepaying loans in response to rate changes, can significantly impact the value of MBS, especially when positions are highly leveraged [4]