Distressed managers make the best of a bad situation

For fund managers buying distressed European assets the current business climate is anything but gloomy.

Some of the most experienced distressed fund managers are opening portfolios to help European clients make money from these troubled times.

Several new, nimble portfolios have been launched by seasoned investors such as Lee Robinson (Altana Wealth), Gina Germano (Goldbridge Capital Partners), Donald P­ollard (Credit Value Partners) and Andrew ­Marshak (Credit Suisse Asset Management).

International law firm Shearman & Sterling recently c­alculated that distressed funds had about €200bn devoted to European ‘special situation’ strategies.

It said many of its US fund clients had “devoted an increasing amount of time and resources to distressed investment opportunities in the UK/Europe”.

Riches out of ruin

Distressed managers say that buying opportunities will emerge from Europe’s unremittingly difficult business environment, and that stricter capital requirements will force Europe’s banks to offload ‘problem assets’. This is despite the European Central Bank’s (ECB) immensely popular three-year, 1% bank loan programme.

“[ECB President] Mario Draghi might delay banks’ distressed selling, but he cannot stop it forever,” said one manager, who estimates the ECB has postponed ­widespread bank selling for a couple of quarters.

But as more distressed funds emerged, allocators’ ­appetite has weakened. In a recent survey of hedge investor appetite by Credit Suisse, distressed only ranked 16th of 33 strategies.

Susanne Hellmann, managing director of ING ­Investment Management (Germany), says: “When meeting clients during the past few months, there is no interest in this strategy. Our clients only ask for long-only, risk reduction strategies.”

Is only mediocre demand justified? Or will allocators who focus elsewhere miss an opportunity? Lee Robinson, who invested in distressed for 18 years before launching Altana Wealth last year, says: “Having more defaults is the only conclusion you can draw from there being too many debts, and not enough assets. The whole political model since World War II is about making and giving people promises that end up with economies running out of money. It’s a simple analysis, but anyone who thinks the problem can be solved without default is in ‘La-La Land’.”

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