Distressed Debt Opening Doors for Top Talent
Like bargain hunters, hedge funds and so-called “vulture investors” are currently looking for opportunities in troubled situations. In the wake of the subprime meltdown, a number of investors turned to distressed investing - a cyclical strategy that tends to do well when times are tough for everyone else. They are seeking out cheap or distressed debt, undertaking turnaround situations or rescuing companies from liquidation.
Investing in distressed securities is likely to be a top-performing strategy in 2008, according to a recent study conducted by Hedge Fund Research (HFR), reports Reuters. According to industry experts, there is no doubt that defaults will rise in the second half of the year. As a result, executive search firm, A.E. Feldman, says that demand exists for investment professionals who specialize in researching distressed securities and who understand the true risks and values involved.
Distressed investors look to buy the discounted bonds, loans or other debt of firms that have defaulted as well as those that are on the verge of bankruptcy or financial restructuring. These investors are making a bet they can ride out the slide and enjoy strong returns after a turnaround.
In November, Lennar Corp. sold 11,000 properties in eight states at just $0.40 on the dollar, according to a Bloomberg report. That same report also notes that that’s how much Morgan Stanley Real Estate paid for an 80% stake in 32 communities - a staggering 60% less than the price at which the properties were valued just two months earlier. Bloomberg quotes Jack McCabe of McCabe Research & Consulting, which advises hedge funds and other investors on real estate sales, as saying, ”you’re an opportunistic buyer with enough cash and credit, it will be one of the best opportunities for acquiring property in our lifetime.”
A recent HFR survey of 41 hedge fund executives, collectively managing roughly $227 billion, finds that more than 20% of those polled believe that strategies geared to distressed debt securities are set to outperform other strategies for the next 12 months, according to Reuters. Bloomberg also reports that the global default rate on high-yield, high-risk bonds will jump more than five-fold by the end of 2008, according to Moody’s Investors Service. That may be pessimistic but many experts say there is no doubt that defaults will rise in the second half of 2008.
Executive search firm, A.E. Feldman, says investors are setting up dedicated teams to identify opportunities in the distressed debt market. The firm says candidates with strong valuation, modeling and analytical skills are poised to gain from this trend.
