Despite the recovery in the multi-trillion dollar global Asset Backed Securities (ABS) market since the depths of the financial crisis, hundreds of billions of dollars of legacy distressed ABS remain outstanding.  Waterfall is strategically positioned to leverage the expertise and experience of its founding principals – Tom Capasse and Jack Ross – who established Merrill Lynch’s ABS Group in the 1980s and created many of the first securitizations.  The investable universe of ABS includes over 60 sectors and extends well beyond traditional structured credit – notably residential mortgage backed securities (RMBS).  Waterfall seeks relative value across the entire market, particularly esoteric sectors, examples of which include timeshares receivables, small balance commercial mortgages and reverse mortgages.

In addition to its multi-sector focus, Waterfall is one of the few ABS specialists to source product through three distinct channels: the distressed secondary markets, new issue market and purchase/securitization of whole loans. The firm seeks to create a considerable new issue pipeline through existing direct relationships with specialty finance companies and an expansive network of brokers. Waterfall’s high-yield strategy has the ability to employ leverage and Waterfall actively seeks to hedge both interest rate and credit (tail) risk.

The Waterfall High-Yield ABS strategy seeks to invest in assets with the following characteristics:

  • Strong absolute return
  • High current cash flow
  • Inflation-resistant (floating-rate)
  • Low correlation and volatility


Waterfall’s Loan Opportunity Strategy targets strong absolute returns through investment in distressed consumer and commercial loans. These loans are primarily acquired through banks as part of their post-crisis, de-leveraging process. Waterfall’s multi-sector loan servicing capabilities allow the strategy to adopt the same relative value approach as our ABS strategy: opportunistically targeting loan sectors in which complexity and lack of buyers enables low acquisition prices with strong resolution potential. The Loan Opportunity Strategy is actively managed and seeks to drive returns through capital gains from loan liquidations and sustainable cash flows.

The initial strategy focused on residential non-performing loans with subsequent expansion into other loan sectors, including small balance commercial and reverse mortgage loans. The strategy may seek to enhance returns through the use of non-recourse leverage via securitization.


As of December 2012, the Small Balance Commercial (SBC) loan sector of the real estate market was $588 billion. The credit crisis left approximately 35% credit-distressed and the exit of most lenders reduced SBC origination volume by approximately 50%. The SBC strategy seeks to capitalize on sector’s distress through the purchase of credit-distressed legacy SBC portfolios (primarily offered in the market by community banks continuing to restructure post-credit crisis); and the origination of new SBC loans funded in the securitization market. An underserved niche market, Waterfall seeks SBC loans which generally possess the following characteristics:

  • Approximately $750,000 average principal balance
  • First-lien, real-estate secured
  • Investor-owned real estate including mixed use, multi-family, retail and office or owner-occupied business loans

Since 2008, through its comprehensive SBC platform, Waterfall has purchased approximately $1 billion in loan assets nationwide. The firm’s expertise is founded upon the deep experience of its principals, who began actively investing in SBC loans in the early 1990s. Waterfall’s SBC strategy seeks to enhance returns through non-recourse leverage via the issuance of asset backed securities backed by SBC loans.

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Waterfall’s private equity team represents a specialized industry domain knowledge of financial services and financial technology businesses. We are principled in synergizing our industry knowledge, relationships and passion for entrepreneurship to empower financial services businesses to innovate, accelerate their growth and achieve market share leadership in their industry vertical.

We build partnership with management to augment best practices across sales, customer excellence, compliance & integrity, data intelligence, technology enablement, risk management, product innovation, and capital efficiency. We are both a capital partner and a growth partner.

Our value-add to management includes:

  • Recruiting executives within our network
  • Reverse engineering a patient multi-year value-add roadmap and exit path
  • High touch board participation, challenging the status quo, thinking big and expanding the frontier of strategic thinking
  • Anchoring decision-making to sophisticated data reporting
  • Identify opportunities to optimize profitability and capital efficiency
  • Shaping the technology roadmap
  • Invigorating an accountability culture to achieve high-impact milestones and executing to the plan
  • Institutionalizing best practices across the organization
  • Leverage lessons learned, wins and professional relationships across our broader portfolio companies
  • Source, diligence and execute M&A opportunities

Waterfall’s private equity investment criteria include:

  • We are focused on entrepreneurial lower-middle market businesses in the specialty finance, financial technology, data & analytics, and tech-enabled services industries
  • We invest across the spectrum of a company life cycle, from businesses approaching profitability to businesses that are rapidly scaling
  • We are focused on North American domiciled businesses, whereby our team is better positioned to add value to management
  • We invest in businesses with a durable business model across cycles, favorable return-on-capital profile and passionate management teams
  • We invest in both control deals and minority deals with commensurate board governance rights