Hedge fund veteran Lee Robinson says more defaults is ‘the only conclusion

Lee Robinson, one of the hedge fund industry’s most experienced distressed assets investors, says “having more defaults is the only conclusion you can draw from there being too many debts, and not enough assets” – as is the case in Europe at present.

To benefit for the resulting stress across sectors and asset classes, Robinson (pictured) established Altana Wealth after closing Trafalgar Asset Managers. He launched the Altana Distressed Assets Fund (ADAF) in November, and it opened to external investors last fortnight.

It takes an ‘opportunistic’ approach to markets, and does not restrict itself only to debt and credit trading at distressed levels in its bid to generate real returns. Equities, derivatives and CDS are other instruments it can use to make money, and limit any losses.

Robinson says: “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’.

“You will see opportunities to buy assets at mid single-digit multiples of mid-cycle earnings, possibly through distressed bonds.”

He highlights Thomas Cook, whose debt has traded at below 40 cents on the dollar, Greek sovereigns trading “in the 20s”, and Germany’s Q-Cells, as some of the many opportunities available. Other well-known Blue Chips to have spoken recently of difficult conditions include Siemens, Tesco, and GlaxoSmithKline.

The euro share class of the Trafalgar Catalyst fund that Robinson managed, made 5.4% in 2008, investors said. At the same time, Robinson’s event-driven hedge fund peers struggled at the sharp end of the credit crunch, losing 21.8% of their value on average, according to Hedge Fund Research’s HFRI Event Driven fund index.

Robinson says it is important to target returns above inflation, as Altana Distressed Assets Fund does. “In a world where interest rates are low and inflation is high, pension funds are focused on that, and anyone over 70 is, as well.”

He foresees more defaults – whether ‘actual’ in the case of Greece, or via the European Central Bank’s cheap loan program, “which is default by stealth, but you still have a loss”.

Primarily, Altana Distressed Assets’ initial focus will be on European corporates.

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