In Search Of Distressed Opportunities In Structured Credit: In-Depth Interview With Deer Park Road Founders

Much of today’s credit market remains focused on when distress will emerge, particularly across corporate and private credit, where spreads are trading at or near historical tights. Morgan Stanley noted in October that the private credit market could grow to $5 trillion by 2029, underscoring both the scale of capital chasing yield and the degree to which risk is being priced aggressively amid relatively low defaults and supportive technicals.

By contrast, segments of the CMBS market have already experienced a meaningful repricing. Higher interest rates, reduced liquidity, and evolving commercial real estate fundamentals have pushed CMBS market into distress, creating opportunities grounded in existing dislocation rather than anticipated stress. From a relative-value perspective, CMBS offers exposure to assets where downside scenarios are more fully reflected in pricing, unlike corporate and private credit, which remain vulnerable to a normalization in spreads as volatility returns.

In an interview with Hedge Fund Alpha, Scott Gibson and Kiva Patten of Deer Park Road shared details on their strategy and what they believe is ahead for the credit markets.

Background on Deer Park Road

Founded in 2003, Deer Park Road primarily focuses on credit opportunities across the entire structured credit landscape. Founder Michael Craig Scheckman originally worked under Izzy Englander at Millennium Management, running a similar kind of strategy.

Ultimately, Scheckman saw that with the Global Financial Crisis, credit opportunities became very abundant, especially in the residential mortgage-backed space, so he left Millennium to launch Deer Park’s flagship hedge fund, the STS Master Fund. The strategy is an open-ended, co-mingled hedge fund that was launched in 2008.

“Really the target and the fulcrum of what we do is looking for those distressed credit opportunities,” Gibson said. “Clearly, the GFC provided a distressed opportunity in the residential space. That has been a backbone of that strategy. But over the years, we have navigated in and out of various other segments of structured credit. Commercial mortgage-backed securities were a significant portion of the portfolio in the early days of STS, and then actually became a hedge because we were worried about risk. And now, I think really importantly, we're seeing huge opportunities from the distress in that segment.”

Current fund offerings

Deer Park Road has grown to $2.7 billion in assets under management, of which $1 billion is in the flagship fund. The firm also oversees separately managed funds / funds of one and manages a daily liquid mutual fund alongside two more recently launched dedicated structured credit funds.

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Those funds include their Mortgage Opportunity Fund I, which they launched in early 2024. It focuses on the residential mortgage-backed space. Gibson said they saw significant opportunities coming out of the interest rate shock environment of the last three years, so they targeted those investments. Then in January 2025, the Deer Park Road team launched their Commercial Mortgage Opportunity Fund I (CMOF), of which Patten is primary portfolio manager.