Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 26)

Global head of investment management Richard Ronzetti says Marathon will be ready with ﬁnancing for the right LBOs. gressive attributes, but he has learned how to interact with people in a productive way.” Richards concedes that he was a very demanding manager and gives a lot of credit to the Wake Forest program for enabling him to develop better management skills. He says the most important thing he learned was delegating responsibility. “There is a delicate balance between being decisive and delegating,” he adds. When Travelers agreed to buy Salomon Brothers in September 1997, the ﬁrm wanted to shift Richards and Hanover into new jobs as it looked to combine some of the operations of Salomon and Smith Barney. They explored whether to stay and create their own business within Salomon Smith Barney but eventually decided to go out on their own. They opened Richards Hanover Asset Management on January 2, 1998. The new hedge fund managers rented on a monthly basis an ofﬁce in midtown Manhattan that was large enough for six people and used folding tables in a conference room to create a makeshift trading desk. Drawing on Hanover’s trading expertise, they decided to focus their ﬁrst offering, Marathon Master Fund, on emerging markets and global debt, hoping to scoop up undervalued securities beaten down by the 1997 Asian currency crisis. Richards knocked on the doors of more than 200 institutions looking for investors but had a hard time convincing them of the wisdom of that strategy. “With no track record, there was little to judge their skills,” recalls BlackRock’s White. “There were signiﬁ- cant early questions about their ability to work together and operate in a business and share responsibility.” Hanover and Richards began investing with just $17 million, of which about $10 million was their own money. They did well in the ﬁrst few months, beneﬁting from a rebound in global markets as investors grew more conﬁdent that the Asian ﬁnancial crisis was abating. But in August, Russia defaulted on its bonds and devalued the ruble, sending shock waves through markets around the world. Many hedge funds took it on the chin, most notably Long-Term Capital Management, which lost $4.6 billion and had to be bailed out by a consortium of banks. Emerging-markets funds were hit especially hard. According to Richards, a basket of 65 emerging-markets hedge funds that had been up as much as 11 percent earlier that summer ﬁnished the year down 38 percent. That summer Richards and Hanover changed the name of their ﬁrm to Marathon. They knew that at yearend their investors could redeem, potentially putting them out of business, and if they didn’t survive, it was best not to have their names on the door. The Marathon Master Fund, however, ﬁnished up slightly for the year, thanks to modest leverage and a good balance of shorts and longs. “They had a difﬁcult year,” White remembers. “There was some consternation about whether to continue with them.” Investors who stuck by Marathon were rewarded in 1999. The Master Fund, which bought up distressed bonds and other assets early in the year as banks in Asia dumped them, was up 25.5 percent. In April 1999, Hanover and Richards launched the Special Opportunity Fund to buy distressed assets and beaten-up securities in Asia and elsewhere, including high-yield paper in the U.S., Europe and Latin America. Special Opportunity was up 83 percent that year. By fall 2001, Marathon had a total of more than $400 million in the Master and Special Opportunity funds. That year Hanover and Richards launched the Global Convertible Fund to capitalize on the dramatic increase in equity market volatility, initially seeding the strategy from the Master Fund. In 2002 they launched the Structured Finance Fund to take advantage of troubles in the CDO, CLO and junk bond markets. The Structured Finance Fund, which was seeded by Special Opportunity, extends loans to corporations, using companies’ underlying assets as collateral. Eventually, the fund branched into buying actual equipment from companies and leasing it back to them. Rabinowitz, who has a JD from Fordham University School of Law and is a CPA, joined Marathon in January 2002 to help oversee operations. He had worked for two pioneers among hedge fund service providers — Joel Press of accounting ﬁrm Ernst & Young and Paul Roth, co-founder of law ﬁrm Schulte Roth & Zabel. Rabinowitz is a man of many hats. He works with Richards and Hanover to set the strategic direction for the ﬁ rm and has day-to-day responsibility for ﬁnancial controls, opPhoto by Seth Kushner for Alpha 26 • 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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