Institutional Investor's Alpha Magazine - March 2009 - (Page 6) Marc Lasry’s Avenue Capital now owns a chunk of the National Enquirer. equity investors keep stepping in to shore up the imperiled sector. Would-be saviors include Harbinger Capital Partners, a New York– based hedge fund that has taken equity stakes in both the New York Times Co. and Media General, owner of the Richmond Times-Dispatch and the Tampa Tribune. New York–based private equity firm Avista Capital Partners, owner of the StarTribune in Minneapolis, watched that investment go bankrupt in January, the same month activist hedge fund Davidson Kempner Capital Management in New York won control of the Chicago Sun-Times Media Group. In one of the latest crises, tabloid publisher American Media — whose properties include the National Enquirer and Star magazine — defaulted on $431 million in bonds, prompting a group of the bondholders to trade the debt for a combined 95 percent equity stake in the company in late January. The group included Marc Lasry’s New York–based hedge fund firm Avenue Capital Group, Regiment Capital Advisors in Boston and New York–based Angelo, Gordon & Co. What their 95 percent interest will ultimately be worth is hard to say. Former equity owners Evercore Partners in New York and Thomas H. Lee Partners in Boston were left with a measly 5 percent stake and losses of $200 million and $300 million, respectively. “These assets have a long history, and it’s not very pleasant,” says James Harris, CEO of New York–based private equity firm Seneca Financial Group. Eric Hoff, a senior analyst at Feingold O’Keeffe Capital, a credit specialist hedge fund in Boston, notes that media holdings used to generate a lot of cash that didn’t have to be reinvested in the way that a highmaintenance holding like a steel factory would require. Hoff sums up the underlying problem in what sounds like an epitaph for a media company gone bust: Ad-dependent revenues started falling. — Frances Denmark INVESTORFORUM Like it or not, a new sheriff is in town — the town being Washington, the sheriff being the Obama administration — and in all likelihood the federal government this year will begin requiring hedge funds to register, though it’s not clear what that means (see “Here Come the Feds,” page 14). The idea has strong support in the Democraticcontrolled Congress, and most of the institutional investors surveyed here don’t have a problem with that prospect. Mistakes Were Made E What type of institution do you represent? Corporate pension fund 27.4% Public pension fund 34.0 Taft-Hartley pension fund 1.9 Endowment 34.9 Foundation 1.9 What is the size of your fund? More than $5 billion 13.5% $2.50 billion to $5 billion 12.5 $1 billion to $2.49 billion 20.2 $500 million to $999 million 10.6 $100 million to $499 million 26.0 Less than $100 million 17.3 Do you currently invest in hedge funds or funds of hedge funds? Yes 52.9% No 47.1 If you answered no, would you consider investing in hedge funds? Yes 16.2% No 83.8 If you do invest in hedge funds, how big is your allocation? 26 to 50 percent 5.7% 16 to 25 percent 18.9 11 to 15 percent 11.3 6 to 10 percent 34.0 Less than 6 percent 30.2 Should hedge funds be subject to limits on leverage? Yes 43.6% No 56.4 If you answered yes, what would you consider an acceptable leverage ratio for a hedge fund? 2-to-1 29.0% 3-to-1 41.9 4-to-1 19.4 5-to-1 6.5 10-to-1 3.2 Should hedge funds be subject to restrictions on short-selling? Yes 33.3% No 66.7 If you answered yes, what would you consider acceptable restrictions? Monthly disclosure of short positions 19.4% Quarterly disclosure of short positions 27.8 Shorting of only nonfinancial companies 5.6 Reinstatement of the uptick rule 47.2 Do you think hedge funds are to blame for the credit crisis? No 52.5% Yes, some of the blame 44.6 Yes, most of the blame 3.0 Should hedge funds be required to register? Yes 82.2% No 17.8 Are registered hedge fund managers less likely to commit fraud than unregistered managers? Yes 54.1% No 45.9 Responses may not total 100 percent because of rounding. ver since launching their first fund in 1998, Louis Hanover and Bruce Richards, co-founders of New York–based Marathon Asset Management, have deftly sidestepped market meltdowns. But last year’s global implosion was too potent for even them to avoid, and all of Marathon’s funds were down by double digits (like most funds). The Marathon Special Opportunity Fund fell 29 percent and saw its assets shrink to $2.4 billion. The Marathon Overseas Fund dropped 35 percent, its assets reduced to $650 million from $1 billion. Altogether, 10 percent of the firm’s assets were redeemed, cutting the total at one point to $9.4 billion. Andrew Rabinowitz, president, CFO and COO, concedes some mistakes. Although Marathon was correctly bearish on credit, it bet heavily on credit default swaps on banks and insurance companies, a wager that held its own until JPMorgan Chase & Co. saved Bear Stearns Cos. and the federal government bailed out American International Group. Rabinowitz says Marathon should simply have sold Photograph by Frank Veronsky 6 • INSTITUTIONAL INVESTOR’S ALPHA • MARCH 2009
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.