LibreMax Capital LLC, co-founded by former Deutsche Bank AG trader Greg Lippmann, beat rivals last month with wagers on mortgage securities, including those backed by loans called "toxic" by a government commission.
LibreMax Partners LP gained 2.29% in January and has grown 6.55% since its inception in October, according to a monthly performance report to investors.
The gain for January was the fund's biggest since its start, the report said.
Hedge funds that focus on asset-backed securities globally climbed 1.97% in January, Bloomberg data showed.
Lippmann, 42, gained fame for his bets at Deutsche Bank against subprime mortgage securities before the housing market collapsed.
He is now profiting by buying subprime mortgage bonds that were created before housing prices peaked.
Investments in option adjustable-rate mortgages, which let borrowers pay less interest than they owe by increasing their principal, produced the biggest gains last month, the fund manager told investors.
"We believe securitized products are fundamentally cheap to broader markets," Lippmann wrote in a letter discussing the fund's fourth-quarter performance.
Investments are made assuming housing prices drop 10% from current levels and that as many as twice the number of borrowers default as are currently delinquent.
