Money managers under the microscope
Guest blogger Robert Olman is President of Alpha Search Advisory Partners.
The views expressed here are the author’s own and do not constitute Reuters point of view.
The ‘perfect storm’ of 2008 revealed several flaws in the hedge fund model.
With the decision by multiple funds to drop their gates in response to a tsunami of redemption requests, the mismatch of the liquidity in the funds’ investment portfolio and the liquidity provided to the investors became apparent.
Forward-thinking hedge funds are launching new funds (or restructuring) to resolve the liquidity mismatch while maintaining the integrity and scope of their investment process in a number of ways.
For example, many firms are using paired offerings, especially in the credit, ABS and distressed spaces: one with monthly lock-ups and conservative target returns, which will invest in liquid products; the second with longer lock-ups, approaching a private equity-like structure, with more aggressive target returns.
As if CIT didn't have enough problems digging itself out of a credit morass, now it has Carl Icahn to contend with. Troubled by what he sees as sweetheart deals between CIT and its largest creditors, at the expense of the little-guy bondholder, Icahn has offered to underwrite the $6 billion the small-business lender says it needs to survive. Icahn's offer sent CIT shares soaring by double digits ... to well above a dollar.
In a letter to CIT's board, Icahn said certain large bondholders are being offered an opportunity to purchase secured loans at prices well below their fair market value.
from Summit Notebook:
In zombie films, the dead walk the earth and slowly annihilate the living. Such a frightening prospect may be in store for Europe, the Reuters Restructuring Summit was told.
Banks are one of the big problems, speakers said, as they are unwilling to take the size of write-downs necessary to cut firms' debts down to a manageable size.
We may have just lived through the biggest financial crisis in 80 years, but its impact may still not have been big enough for people to learn the right lessons for next time.
Philip Wood, special global counsel at Allen & Overy, told today’s Reuters Restructuring Summit in London’s Canary Wharf that the effects on the Western world’s populace of the credit crisis, while large, have simply not reached the proportions of 80 years ago.
He said at the Reuters Restructuring Summit in London that by the end of the year banks will issue “in patient”, “out patient” or “morgue” judgements as they go about the business to decide who gets much needed loans and who does not.
Despite objections, and a rival bid from PAI Partners, a group of three distressed debt investors proved successful in their aggressive bid to wrestle control of French roofing company Monier through a debt for equity swap.
The restructuring deal sees Monier’s 1.9 billion euro debt load halved in exchange for senior lenders taking full ownership of the firm.
Hedge funds may be sniffing around the growing mountain of troubled European companies, picking out those they see as most likely candidates to undertake bond exchanges as a way to make money, according to market talk.
Debt-laden Dutch NXP Semiconductors NXP this week managed to cut its debt by about $465 million in an example of a debt-swap restructuring deal that has been more common in the United States up until now.
The financial industry is famously flexible. Previously held shibboleths can be ditched in the blink of an eye to be replaced by more appropriate, and profitable, assumptions.
And so it is that hedge funds have embraced restructuring culture. No longer is there shame in distressed assets, forced sales and dried up liquidity. In a time when going to the wall is an everyday occurrence, the smart money, and the optimism, comes from finding opportunity in straitened times.