Is this a sign? Hedgies closing distressed debt funds

Is this a sign? Hedgies closing distressed debt funds
Did you hear? The credit crisis is officially over — at least according to the handful of hedge fund managers who have shut down their “credit crisis funds” over the past few weeks.
MAR 09, 2010
Did you hear? The credit crisis is officially over — at least according to the handful of hedge fund managers who have shut down their “credit crisis funds” over the past few weeks. Manhattan-based BlueMountain Capital Management abruptly liquidated its distressed debt fund in early February, after just 11 months of operation, returning the money to investors. The $100 million fund was launched last spring to take advantage of the liquidity crisis by snapping up cheap debt that investment firms were unloading for cents on the dollar. By January, the fund had gained 34%. BlueMountain co-founder Stephen Siderow decided to quit while he was ahead. It was initially marketed as a two-year fund. “Most of the opportunity is behind us,” said Mr. Siderow, whose firm manages about $4 billion. “I just don't see a whole lot of upside. There will still be opportunities, but nothing like what we just had.” Also moving on is Highland Capital, a $25 billion Dallas-based money manager, which just liquidated its distressed debt fund four years earlier than planned. The fund launched in November 2008, investing in collateralized debt obligations, the toxic securities largely credited for causing the financial crisis, and surprised its managers with gains of 138% by the beginning of this year. Highland managers decided to fold the fund, rather than push their luck. Similarly, hedge fund firm Silverback chose to liquidate its aptly named Opportunistic Convertible Fund after just 10 months in the game. Chapel Hill, N.C.-based Silverback focused on what the investment industry calls convertible arbitrage, buying distressed convertible bonds and capitalizing on the spread between the depressed price of a company's bonds and its stock price. Good call: The $500-million fund boasted gains of 121% when Silverback pulled the plug in December. Most of these firms' investors simply reinvested with the same fund family, taking managers' advice to direct their money to other strategies. “It's time to move on,” declared Mr. Siderow. But not everyone is willing to leave the post-crisis-market for dead. Marc Lasry, managing director of Avenue Capital Group, is said to be launching a brand-new distressed debt fund—and more than likely will be buying up some of the cast-offs from liquidating funds. The Manhattan-based money manager, with $18.5 billion in assets, intends to raise $3 billion for its latest effort over the next three months, according to reports. That's an ambitious goal: of the 750 or so hedge funds that launched last year, only two had assets of more than $1 billion. Avenue Capital's spokesman declined to comment. Ms. Potkewitz is a reporter at Crain's New York Business, a sister publication to InvestmentNews.

Latest News

Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney
Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney

Nine-month electronic trading freeze and share lending program at the center of dismissed claim.

RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone
RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone

Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.

Rethinking diversification amid a concentrated S&P 500
Rethinking diversification amid a concentrated S&P 500

With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.

Merrill pays second settlement to former Miami Dolphins player, client of ex-broker
Merrill pays second settlement to former Miami Dolphins player, client of ex-broker

Professional athletes are often targets of scam artists and are particularly vulnerable to fraud.

Schwab touts AI as its biggest growth lever at investor day
Schwab touts AI as its biggest growth lever at investor day

The brokerage giant tells Wall Street it will use artificial intelligence to reach clients it has never been able to serve — and turn the technology's perceived threat into a competitive edge.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline