2nd year analyst at an EB waiting for my next six months to tick by before I start my next job at a distressed hedge fund. Unfortunately in the office on a Sat waiting for comments and was recently watching a Paul Singer video on how he thinks about distressed investing as a mechanical way to extract value via controlling adhoc groups / committees.
The above gave me the idea to see how often some of the top funds are mentioned in last 5 years in publicly disclosed articles on Reorg Research, one of the more comprehensive restructuring databases out there. Mentions on Reorg I feel are a decent proxy to figuring out which funds out there have big pools of capital to control a class(es) of debt and are active distressed players in reorganizing companies.
Usually, a fund will be mentioned because they (i) exert significant control over a class through $ value / % vote of tranche, (ii) are sitting on committees / adhoc groups, or (iii) have a litigation angle to a credit. Results below:
- Aurelius Capital 653
- Oaktree Capital 630
- Elliott Associates 470
- Centerbridge 371
- White Box 323
- Solus Alternative 313
- Brigade Capital 208
- Marathon Asset Management 192
- Angelo Gordon 189
- BlueMountain 181
- Cerberus 180
- GoldenTree 180
- GSO Capital Partners 175
- Silver Point Capital 173
- Highland 170
- Contrarian Capital 159
- Fortress Investment 157
- York Capital 141
- Davidson Kempner 125
- Och Ziff 122
- Paloma Partners 121
- Fir Tree 118
- Marblegate 117
- Caspian Capital 112
- Appaloosa 111
- Canyon Capital 105
- Taconic 103
- Perry Capital 100
- Highbridge 100
- Tennenbaum 100
- Cyrus Capital 99
- Mudrick Capital 94
- Bayside Capital 91
- Baupost Group 89
- Avenue Capital 83
- CarVal Investors 82
- Abrams Capital 80
- Benefit Street Partners 78
- Paulson 76
- Marble Ridge 73
- Monarch Alternative 69
- Bain Capital Credit 64
- Oak Hill 64
- Strategic Value Partners 59
- River Birch 51
- Anchorage 49
- King Street Capital 48
- Varde 44
- Redwood Capital 41
- Halcyon Capital 38
- Third Point LLC 37
- Farallon Capital 36
- Venor Capital 32
- Greywolf 32
- Beach Point 29
- Mason Capital 28
- Nokota 21
- TCW Group 18
- Senator Investment 9
- Glenview 9
- Finepoint Capital 3
The above generally makes sense to me as I read Reorg everyday so my muscle memory jives with the above. It also falls in line with the half dozen deals I've been on where I've interacted with over half of the top 20 names there. Disclaimer that deals that had too many articles for the same debtor tends to over inflates certain funds mentions like funds involved in EFH (over half of Elliott's mentions, Centerbridge), Abengoa (Oaktree, Elliott, Centerbridge), Molycorp (Oaktree), Windstream (Aurelius litigation), Peabody (Aurelius, Elliott), Oi Sa (Aurelius litigation...see a trend?) etc.
Thought it would make a good list for prospective monkeys interested in distress - choosing some of the above names could be a great way to get exposure to active distressed situational experience. The top 20 list is probably well known to any restructuring-focused banker but may be helpful to those who don't follow it day to day.
Discuss - any big funds I missed? Any surprisingly results from above?
Comments (39)
Some observations from my side and commentary in just the top 20 listed:
Did you actually enjoy working across from Aurelius? Everyone I knew hated it when them/Elliott were in the cap structure, because you could never trust them/never knew what they were going to do.
DistressedFund123 , thanks for the great thread - I'm just curious - I read the letter by BlueMountain on PG&E but I just don't see how this can help them achieve anything? What real pressure does the letter give to PG&E - the company can just ignore it, no? How does this affect the process in BlueMountain's favor?
Thanks!
I believe it's more for positioning purposes. Obviously the best case scenario from their perspective is that PG&E reads the letters and decides to not file for bankruptcy. As we now know, that did not happen, so BlueMountain has subsequently announced that they want to the clean house in respect to PG&E's BoD and try and walk back the bankruptcy proceedings. So basically they are are starting a campaign among shareholders in order to accomplish this and the public letters are the first step in that process. See below for an excerpt from their latest open letter:
"We believe that the damage caused by the Company's plans to file for a multi-year bankruptcy can be mitigated if shareholders demand accountability and replace the Current Board. After the Annual Meeting, a new boardwould have a mandate to undertake a reasonable solvency analysis with disinterested advisors. A new board
would also have the ability to investigate the decisions that led to the Company's value-destroying bankruptcy announcement and take appropriate action. If a new board agreed with the overwhelming evidence that PG&E is solvent, it could exit bankruptcy on an expedited basis without impairing creditors."
Do you have any idea what the returns for these funds are?
My interaction with Brodsky was characterized as someone who really understood the pain and pressing points for another creditor group, which I appreciated when I was only a few months into the job.
It helped me get a sense of those who "get it" and those who follow the heard and are passive distressed folks.
In terms of hating it - yes they take the approach of how do I take a bigger chunk of the pie given this piece I'm entitled to and then the next step, how do I take a bigger chunk of this pie that I'm entitled to from others who also are entitled to that same slice (let me get preferential backstop treatment vs. other small guys who should get similar economics. I'm sure when I join my fund the people will have opinions on whether they like to get involved alongside or against Aurelius/Elliott or not.
Most of the funds above, especially the large ones will have returns somewhere in the 8-12% net range. Some funds up there have really outstanding returns such as Elliott, Baupost etc. but that's not what this list is about. Some funds have mediocre returns but have grown assets to become behemoth credit managers.
I completely agree - fund strategy will be dictated by the PM and Klarman will have a different approach from Brodsky who will have a different approach from Dinan. End of the day, I think very much every fund listed above is are great funds but the above could be helpful to find out who actually digs deep into distress and who may be more selective about situations (i.e. "we don't do retail restructurings" meanwhile Angelo or Solus don't mind getting their hands dirty) or who are more passive distressed investors (i.e. they will let the big guys dictate outcomes). Important to note that the big and small guys all interact with each as restructuring is very much a community driven space where it helps to align yourself with lawyers, bankers, other funds and importantly, company management.
This isn't a ranking in that X mentions is better than Y fund. This is strictly who is publicly going out there and getting coverage and getting involved in bankruptcy processes. I mentioned it above but strictly speaking, a fund in the top 20-30 for example would be a good chance for a junior person to get upfront distressed experience if that's what you're looking for.
Any college student / junior banker will be lucky to get interiews or work at any fund above. Some of them like Redwood or Third Point are arguably some of the most desirable funds to work at on the list.
Performance varies tremendously. Solus supposedly got smoked this year. Baupost hasn't actually had good returns in a long time. Elliot crushes it still.
Being active in distressed situations isn't necessarily a great proxy for being good at investing or generating returns. I'd imagine the correlation between performance and the rankings in this list is close to 0.
I agree, no one is saying that performance is correlated. There's funds up there that haven't done well and some that have. Whether activist distressed is more profitable versus private lending or broad high yield credit is up for debate.
Solus was crushed this year, down about 14%
Honestly dude, your commentary is great but I would just get rid of the list part. You know some student is going to read this and start telling everyone in college that Aurelius>>>>Baupost. At the end of the day, everything just depends on what you value in terms of strategy. If you're really into creativity/litigation/overall aggressiveness, places like Aurelius, Elliott, and GSO would all fit the bill. That doesn't mean Baupost, DK, York, Marathon etc. are any worse places to work/worse for your career development. In fact, Baupost and Silverpoint are probably two of the most sought after HF exits for all banking analysts (as well as pre-MBA PE associates).
Interesting list, but this is purely based on mentions in Reorg, correct? I am not sure that will necessarily have much correlation with activity, and definitely not with performance.
Also, it seems like you are familiar with Aurelius, so I was wondering if you can explain why they are so highly regarded? A Bloomberg article mentioned their returns recently, and they were not particularly impressive.
Having worked at a large distressed fund, a few observations / comments.
This list is not really a great proxy for distressed activity, presence, or expertise. As the OP mentioned, outsized number of Reorg mentions are driven primarily by select cases involving a litigation angle that may have frequent court filings / updates. A much more interesting (although still no where near perfect) way to list funds would be the number of times they show up in 2019 filings (official public disclosures of an ad hoc committee's holdings by member) and how large their respective positions are.
Aurelius is a well respected shop but frankly they are more like the annoying gnat in the room than a true heavyweight. They are certainly sharp, litigious, and aggressive, but as a function of their small size (3-4bn AUM) they never really have anywhere near the heft needed to control groups / processes. They will typically be a smaller holder in a large situation and try to create nuisance / hold up value by "bomb throwing" and forcing a favorable settlement. Also worth noting that because of the heavy litigation angle, there is a huge focus on combing through credit documents and a bit less of a focus on fundamental value investing vs. other shops, and they do not generally invest with the intent to own the equity post-reorg.
Elliott has the aggression of an Aurelius but also the AUM and conviction to take some massive and concentrated positions (500m-2bn). In any situation they are in, they seek to control the process as a function of their size and creativity (someone above mentioned their approach to extracting value, which is spot on). These guys have probably been the most successful in process driven distressed investing, and are certainly the most respected on the street.
Any of these funds would be a great experience for someone looking to work in the industry. All funds, small or large, are exposed to and participate in the same situations / investments. Distressed / stressed is pretty limited when it comes to the number of publicly traded opportunities - for the most part, every decent sized fund evaluates every single distressed situation. I would say though that AUM is clearly important to activist distressed strategies since it allows you to play a role in the process and not get cut out of club deals on DIPs, rights offerings, backstops, etc. That said, a smaller fund can still employ a similar strategy by investing in middle market restructurings (where 50mm makes you a meaningful holder).
Similar to public equity investing, public distressed credit as a broader strategy has not achieved great returns in recent years. Anyone who has averaged 10%+ returns in the last 5 years would easily be in the top quartile.
Spot on, excellent commentary. Public distressed has struggled. The fund I'm going to, I think the last five year return is like sub 8% net / ~10% gross.
2019 could be more accurate and I thought about that first, but my personal experience has been that lots of lawyers find ways around that public disclosure (i.e. no need to disclose if you are not presenting before a judge...in the meantime the holdings of the class have churned through multiple different funds. I saw this first hand with SVP and OAK and how they traded in and out of positions, making money and never were disclosed).
To sum it up - all of this has a large degree of inaccuracy but directionally gives you a sense. Reorg already reports nearly every 2019 holding update and then depends on its bankruptcy journalists (Debtwire is also good at this) who live and die by calling up bankers / lawyers / funds to try see what personal insight they can gather in a situation. One of the key questions they always ask is - "do you know who is in the structure?"
Thanks, that is consistent with what I've heard on Aurelius.
Any insights (from you, or anyone else) on the main reasons why Mudrick has been successful these last few years? I know they did reasonably well in coal and E&P, but was wondering if people knew of other successes they had. Seems like Verso was another success for them.
Can you comment as to which firms you'd see as the top firms taking lead positions in creditor committees?
They all typically like to but it's generally determined by size of your position. The largest creditors will lead the group. How large a fund is in a particular name is driven by AUM and how concentrated of positions they take. If you have access to Reorg Research you can can easily search their database of Rule 2019 filings of group holdings disclosures - look at a few of the largest bankruptcies of recent years such as Puerto Rico (and it's various issuers), EFIH, Caesars, etc etc. Any fund that has 10-15bn+ of AUM (or better said, 5bn+ allocated to public distressed) will typically be investing in enough size to have a spot on the committee of any credit they're involved in. Smaller funds can certainly have a leadership role too if they're placing more concentrated bets or investing in middle market situations.
This is right - in addition would say that the distressed community is small so everyone knows each other and building a negative reputation for being a pain isn't the best long term strategy
Mind sharing the link to the Singer video?
The method you used seems like a good proxy for identifying the biggest players in the space. Both your logic and the results make sense.
Easy to see where outliers can happen; if someone is involved in a more public spat, their mentions could go way up based on that one situation.
A little surprised to see Paulson as low as they are. Same with Third Point; recognize distressed isn't what they're known for, but they're so busy (especially in the media) that I would've guessed higher.
Paulson and Third Point probably involved in more one off situations and moreso, those funds do participate in distressed but also have a big focus on public equities / merger arb. And anecdotally (ignores leverage), both of Paulson and Third Points 13F filings show that a majority of their discretionary reported AUM is reported in their 13F holdings (which for most part, discloses public equity + calls + puts). A typical distressed-focused fund meanwhile will have a much lower % of their reported AUM found in 13F due to majority of their assets being invested in credit and credit-derivative (CDS) related assets, which aren't required to be disclosed in 13Fs.
Like someone else said above - if your strategy involved distressed credit you will likely be looking at / researching the same names as others but your PM / firm strategy may preclude you from going "deep" into either (i) multiple restructurings at the same time (it's incredibly time intensive form of investing) or (ii) you have strict risk parameters that don't let you touch certain distressed securities, for better or for worse (retail, power, O&G, muni bankruptcies etc.)
Thanks DistressedFund123 ! What are some reasons that power and O&G are "off-limits" for certain funds? I guess for retail, it's because certain funds think the decline in business value creation is permanent given new business models and doesn't fit the "good business, bad balance sheet" criteria (please correct me if I'm wrong on this though)! Thank you!
@DistressedFund123 do you have the link or name of the video with Paul Singer you mentioned, by chance?
It was linked above.
Of note, last few months has seen Aurelius have some big wins via CDS (see WIN & NMG) as an example of "smaller funds" being able to aggressively tackle a target / force hand in restructuring negotiations.
Thank you!
Anyone in the the space have a particular focus on mining/natural resources?
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Thanks for starting a good thread. I will just caution that in distressed the truth is often not what it seems on the surface. While mentions in dockets may be correlated to level of activity in large, public situations (hence your usual suspects), you simply do not know the full picture where other much more important things come into play that should inform your view on the true smarts and performance of these managers; including, their cost basis (are they playing defense because they got involved at $70 and now it's filed and at $30? Or did they correctly call the bottom?) other positions (are they simultaneously short something else? CDS positions?)
Agreed
Anyone got opinions of a career at a distressed fund like Carlyle/Oak Tree vs a hedge fund in the distressed space?
Consensus used to be that you wanted to be at the largest AUM single manager HF with the smallest investment team (ideally 10-20 max with significant lawyer expertise).
In today's world with 1) utterly crap investment returns among big and small players (excluding Mudrick's ecig investment), 2) performance fees basically getting lost amid renegotiated side letters and new 8% pref drawdown structures replacing liquid-redeemable HF allocation and 3) management fee only being able to trend downwards; I'd say there's a very important and maybe not even risk-averse but longer term more rewarding career to be had going to a place with scale, staying power and AUM growth to offset the above mentioned issues (i.e. being one of the 80-90 investment members at an Elliott vs. on a team of 10 at Marble Ridge etc.).
I think it's also an unfortunate truth that most people don't realize is that being subscale in this industry really precludes you from participating in a lot of the most profitable trades in today's age which typically involve fucking over smaller holders in the same class / non-ad hoc members who don't get their pro rata economics like the big guys (Elliott is very good at doing this to box the small guys out). You don't want to wake up tomorrow as a very insignificant tranche holder of debt getting primed by large guys you thought you were pari with taking a lion's share of value away from your guarantors or altering the waterfall priority in your own intercreditor.
Would you classify Carlye and their Special Sits team as someone with enough scale to succeed in this manner?
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