In April 2024, we announced a strategic transformation of our investment strategy to focus on corporate collateralized loan obligations (“CLOs”).
We intend to complete our transition from an MBS-focused company to a CLO-focused company later this year.
In connection with the strategic transformation, we have decided to revoke our REIT election for the tax year 2024. Later this year, we intend to convert to a registered closed end fund to be treated as a regulated investment company (“RIC”) and, in the meantime, will operate as a taxable C-Corp and plan to utilize our significant existing net operating loss carryforwards to offset the majority of our U.S. federal taxable income. We intend to take all necessary steps, including seeking and obtaining all necessary approvals, to complete the closed end fund/RIC conversion later this year.
We are now focusing on acquiring, investing in, and managing secondary CLO mezzanine debt and equity tranches.
Our primary objective is to generate attractive risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the associated risks. Historically, we aimed to attain this objective by constructing and actively managing a portfolio consisting primarily of residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity.
We now invest in multiple parts of the CLO capital structure, including mezzanine debt and equity tranches. We select investments for their ability to provide a strong total return to drive a sustainable earnings stream and book value growth over a long-term horizon, rather than focusing just on current yield. We also take a trading-oriented approach, which seeks to take advantage of pricing inefficiencies in the CLO market, as opposed to simply “buy-and-hold.”
We rely on strong risk management, including disciplined liquidity management and selective use of credit hedges, in order to preserve book value during times of stress. We also leverage Ellington’s proprietary technology, analytics and risk management systems to enhance underwriting and investment selection and to guide ongoing portfolio monitoring and surveillance.