And so our bureau of central planning has once again made distressed investing a relic of the past. Famous distressed PM Bruce Karsh, who runs Oaktree's distressed investment fund, has just decided to return $3 billion of the fund's $10 billion previously raised from investors due to a lack of investing opportunities. Basically, in preventing failure for a select few, Bernanke made failure impossible for everyone (which begs the question: how long before the specialized restructuring boutiques of the world - the Houlihan Lokeys, the Miller Buckfires, and the Alix Partners, continue to exist, let alone sustain on IPO any time now hopes). So after Bernanke destroyed long/short, sometimes incorrectly called "value", investing, he has now eliminated another formerly profitable vertical of the market that rewarded spotting arbitrage opportunities. The only funds that will remain soon as the Long-onlies and the momos of the world - also known the dumbest money imaginable. And when this whole thing crashes, and only shorts would be able to make money, there will be no-one making money, as there will be no capital available to short strategies. Bernanke's plan of killing all the bears has succeeded. Next up: it's the bulls turn.
From the FT:
Fund managers rarely give investors their money back because it means forgoing fees. However, with more debt trading at 100 cents on the dollar and loan yields averaging about 6 per cent, Mr Karsh is handing back the money.
His strategy contrasts with some of his competitors, who are either trying to accumulate big positions in a dwindling number of distressed companies or, in the case of Carlyle, raising a new distressed fund.
Mr Karsh’s relatively cautious approach was also on display in his investment in Centro Properties, a distressed Australian shopping mall owner with $17bn in properties in the US and Australia. Oaktree bought Centro debt at about 40 cents on the dollar and sold when the price climbed above 50 cents. By contrast, some peers maintained big positions in the company.
In the past, Oaktree’s holdings have included positions in the debt of US finance company CIT and General Growth Properties, the US shopping mall owner.
With Apollo, it also took control of aluminium processor Aleris after another buy-out firm, TPG, let it go – for less than half of what TPG paid.
Fund managers remain divided on when distressed opportunities will return.
Some say this is the year that beleaguered European banks will finally start offloading assets. Others predict asset prices may fall after the US Federal Reserve finishes its second round of quantitative easing.
“Further liquidity measures are unlikely, and that lack of incremental liquidity is going to be a game changer,” said Robert Rauch, director of research at Gramercy.
Uh, no. Further liquidity measures are extremely likely if the Fed wishes to prevent America's insolvency, which now has in addition to endless money, also gotten addicted to even more endless debt monetization. As demonstrated earlier, China has now been a net seller of US debt for two years running. Who will replace them: Egypt? Iran? Greece? We can't wait to hear Mr. Rauch's answer.