Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 24)

Marathon Asset Management tomer accounts. Richards and the rest of the Marathon team worked closely with Man and the U.K.’s Financial Services Authority to create a structure that would pass muster with the British regulators. Marathon agreed to take over the assets of U.K. electronic futures-trading firm Refco Trading Services and electronic exchange trading vendor EasyScreen, as well as put £100 million ($196 million) of regulatory capital into the business. Meanwhile, Marathon, which bought the Refco unit for the assumption of about $17 million in liabilities, had to keep the ﬁrm’s licenses and make sure its employees and clients didn’t bolt. In late January 2006, Marathon took control and renamed the business Marex Financial. Today, Marex is a broker-dealer specializing in commodities, financial futures and options, and foreign exchange. It has roughly 400 employees and is run independently, headed by CEO Mark Slade, a former Refco managing director. The company has been profitable every quarter, says Richards. “The aim is to grow that business organically and push it into new markets,” says Adam Phillips, Marathon’s head of European investment management. Phillips, Hanover, Rabinowitz and Richards all sit on the Marex board. The Refco deal marked one of Marathon’s ﬁ rst forays into private equity. Hanover and Richards have earmarked about 20 percent of Marathon’s Special Opportunity Fund to private equity. Wray Thorn oversees the ﬁrm’s private equity group, which has 16 professionals and has made 14 investments. One of its earliest was Chicago-based Marathon Automotive Group, created in 2006 to buy up auto-parts suppliers. Marathon has already purchased three, including Contech, a manufacturer of aluminum and other lightweight metal castings used by auto- and truck makers, which had been part of SPX Corp. “It is a fundamentally good industry that needs capital to grow,” says Thorn, who was a director at San Francisco–based investment ﬁrm Fox Paine & Co. before joining Marathon in June 2005. The Marathon Real Estate Opportunity Fund also crafts private-equity-like deals. In August 2006 the fund, which is managed by Halpern, an 18-year real estate industry veteran whose family has been in the business for four generations, teamed up with RexCorp Realty to buy more than $2 billion worth of properties from SL Green Realty after Green agreed to acquire Reckson Associates Realty for about $6 billion, including the assumption of $2 billion in debt. The MarathonRexCorp joint venture now owns ofﬁce properties in the New York tristate area and all of the former Reckson’s interests in its Australia-listed property trust. “Marathon is not just a capital partner but a valueadded partner,” says RexCorp CEO Scott Rechler. “They are one of the more sophisticated players.” Deals are not done in a vacuum at Marathon. Richards and Hanover encourage the different groups within the firm to work together, as they did with the Refco Photo by Seth Kushner for Alpha Marathon real estate head Jon Halpern (left) and emergingmarkets chief Scott Gordon have worked together on several deals. Blackstone Group, he and Richards called on professionals from the ﬁrm’s New York, London and Singapore ofﬁces to help analyze the situation and line up ﬁnancing. Richards estimates that Marathon devoted about 1,000 man-hours to its bid, which was made as part of a consortium that included Dubai Investment Group. Five of the six groups that submitted offers for Refco were invited to an auction in New York on November 10. The others were Cerberus Capital Management, J.C. Flowers & Co., Interactive Brokers Group and Man Financial, a unit of London-based Man Group. Each was given the opportunity to present its proposal and meet with the courtappointed restructuring adviser, Greenhill & Co. The auction began at 10:00 a.m. Marathon, which had been offering a package worth about $250 million, dropped out at 4:30 the following morning. A few hours later Man won with its offer of $282 million in cash and roughly $41 million of assumed liabilities and other considerations. “Lou exercised a good deal of discipline in that situation,” says Blackstone senior partner Art Newman, who worked with Marathon on this and other deals. “Marathon didn’t get carried away with the moment in the Refco bidding. I saw that as a sign of a smart investor.” However, the folks at Marathon knew all along that if Man won the bidding, it would wind up with redundant operations. Immediately after the auction Marathon struck a deal to buy Refco’s European operations, which then employed about 300 people and had 2,000 cus- 24 • INSTITUTIONAL INVESTOR’S ALPHA • DECEMBER 2007/JANUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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