2ND UPDATE: Ellington Financial Files For $200 Million Common Share IPO

Hedge-fund manager Ellington Management Group's Ellington Financial LLC affiliate plans to raise as much as $200 million in an initial public offering on the New York Stock Exchange, the company said in a regulatory filing.

In its registration documents with the Securities and Exchange Commission, Ellington Financial - a specialty finance company that invests in mortgage-related securities - said it will use the money to buy new assets.

Ellington Financial, which will list its common shares on the NYSE with the symbol EFC, was formed with $250 million from Ellington Management principals and existing investors in August 2007.

A spokesman for Ellington declined to comment, citing "quiet period" rules surrounding IPOs.

Ellington Financial invests in residential mortgage-backed securities, or RMBS, backed by subprime, "Alt-A" and other mortgage loans. It also invests in both mortgage-related and other types of derivatives.

In the IPO filing, Ellington Financial said it has delivered a positive total return on capital since its inception in August 2007. However, investors may be wary of the risks associated with the RMBS the company deals in as the real-estate market is still struggling amid tight credit markets and high inventories.

Ellington Management is considered a pioneer among hedge funds that trade mortgage-backed securities. It was founded in 1994 by Michael Vranos, former head of mortgage-backed trading at Kidder Peabody. It ran into trouble in its funds last year, along with most managers of mortgage-focused funds. After barring withdrawals, Ellington split its main fund in two in order to slowly liquidate hard-to-sell assets, and laid off some employees.

Only three U.S. hedge fund managers have publicly traded shares: Och-Ziff Capital Management Group LLC (OZM), Blackstone Group LP (BX), and Fortress Investment Group (FIG). Ellington Financial's IPO, however, is more similar to those of other specialty finance companies like Chimera Investment Corp. (CIM). and not to hedge-fund IPOs.

For the quarter ended March 31, Ellington Financial's net investment income jumped 61% to $6.3 million from a year earlier, while its net realized gain on investments and hedging soared to $19.8 million from $1.5 million. It realized a loss on investments during the quarter amid stock-market volatility, but saw a big gain on its derivatives. Most of Ellington's real-estate investments are in mark-to-market securities, and immediate results aren't always shown on the balance sheet.

Ellington Financial, which had announced in April its IPO plans, said it would use the proceeds to acquire targeted assets within six months of the closing of the offering. Remaining proceeds would be used for general corporate purposes.

-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; [e-mail]

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; [e-mail]