Commercial MBS veteran Fred Fellows is seeking to raise $500 million of equity for a high-yield fund that will invest in CMBS.

    Fellows, a former Nomura executive, will operate the fund via his newly formed investment-advisory shop in Chicago, called Basalt Capital. 

    The fund will shoot for a 12-14% return by acquiring investment-grade CMBS, primarily in the secondary market. It will seek to exploit the soaring yields caused by the sector’s dislocation. When leveraged, the fund would have $750 million of investment power if the equity goal is achieved.

    Basalt, which isn’t using a placement agent, will solicit capital from institutional investors. The company itself would supply $10 million of the total equity. The vehicle, called Sopris CMBS 08, is expected to begin investing in the first quarter of next year.

    The fund will charge a 1% annual management fee. After investors receive an 8% preferred return, Basalt will get 20% of any additional profits.

    Basalt will also manage separate accounts set up for specific clients. The firm’s financial backers could not be learned.

    In the 1990s, Fellows worked at Nomura, then the leading player in the fledgling CMBS market. During his six-year stint,
he oversaw the marketing of CMBS deals and for a time was head CMBS trader. His brother, Boyd Fellows, was the No. 2 executive in Nomura's giant CMBS operation, serving under real estate chief Ethan Penner.

    After leaving Nomura in 1999, Fred Fellows worked on a short-lived operation aimed at originating mortgages via the Internet. Most recently, he was managing director of Southwest Securities, where he helped to build trading platforms for CMBS and asset-backed securities.  – end –

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