Top firms for distressed investing. Solving for brand and deal experience more than ability to growth within the organization.

I am interested in identifying a list of the top 20-30 distressed debt / special situations groups on the street. I am industry and geography agnostic. I am solving for: (1) learning outcomes, (2) compensation (3) prestige. I am less concerned about (1) ability to grow within the organization (two year program is fine) (2) specific industry focus (3) culture.

Comments (60)

Mar 14, 2019

This has been posted many times before:

Elliott Management
Aurelius Capital
Solus Alternative
Fir Tree Partners
Brigade Capital
Angelo Gordon
BlueMountain
Oaktree Capital
Silver Point Capital
Canyon Partners
Davidson Kempner
York Capital

https://www.wallstreetoasis.com/forums/most-active...
https://www.wallstreetoasis.com/forums/top-distres...
BTW, no one cares about prestige. You care about reputation in distressed investing stemming from actual experience dealing with such parties in an out of court or chapter 11 process.

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  • Investment Analyst in HF - Event
Apr 29, 2020

As an FYI, this is a fairly out of date list. for example:

Solus is winding down and halted redemptions after losing a very substantial amount of money over the last 3 years, something like 30-40% cumulative, maybe more post the recent sell off. There's an interesting WSJ or FT article about it. Owned a lot of illiquid energy that ended up being complete garbage.

BM shut down their credit hedge fund last year and sold their remaining operations (CLOs mostly) to an insurance company. Also awful performance.

Firtree is a shell of its former self in terms of both AUM and headcount, lost a ton of money in energy.

Brigade is mostly HY and CLO capital, not comparable to the others.

York shut down its core distressed HF vehicle after poor performance and large redemptions. They do some distressed out of their multistrat funds and some pockets of drawdown capital, but most of their dedicated distressed capital is gone. Good WSJ article about it.

Aurelius is much smaller and has lost a lot of capital from its peak. Some interesting headlines last year about how the founder married one of his senior analysts who's now the #2 there. They garner a ton of headline from their bomb throwing tactics and are clearly smart/creative, but don't have the scale to take big positions in large cap distressed situations.
https://www.bloomberg.com/news/articles/2018-12-19...
In general, I would classify a "large" distressed fund as one that can allocate 5bn+ to the strategy, or regularly take 100mm+ positions (market value not face) in situations, which is important to being in a position to drive restructuring processes. There are maybe only like 15 other funds that would fit the bill. Elliott is generally viewed as the largest and most sophisticated process oriented investor in the space and regularly takes 1bn+ positions in distressed situations. Their AUM generally limits them to only large cap situations so they need to be creative about extracting process value from situations. However, their distressed returns have been poor as of late because they simply bought bad business (tends to be most of the companies in distress in late cycle, for obvious reasons).

Other funds investing out of multi strat funds but that have traditionally allocated significant capital to distressed include Baupost and King street (latter facing big redemptions).

A few other funds with very significant distressed capital but not necessarily known primarily for it include GSO, Centerbridge, and Apollo. Kkr does it too but to a much smaller extent, Carlyle even smaller.

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Apr 29, 2020

Have any of the large guys done well in recent years? My understanding is that basically everyone has had it rough in recent times.

Array

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  • Prospect in IB - Gen
Apr 29, 2020

Also curious^

Apr 29, 2020

Generally no. High single digits annualized over the last two years would be easily top quartile and considered by LPs as strong performance. It's partly a function of the asset class which as a whole has performed terribly due to most distressed companies being either bad/declining businesses or in energy. There have been few big winners and many "consensus" trades in recent years have blown up. Partly a function of it just being a too crowded market with how much capital is out there allocated to the asset class relative to the opportunity set (which is obviously much bigger today than at any other point in recent years).

Most Helpful
May 1, 2020

if you worked at a reasonably sized fund you should be able to see the returns of your peers. it's pretty publicly (though pay-wall'd) available whether through HFR, eVest or even HSBC.

Some of the "top" performing 3-yr annualized track record (not counting 2020) funds are:

  1. ~15% Mudrick (obviously an outlier given the e-cig inv but even removing it, Mudrick has made some good credit calls)
  2. ~9% Owl Creek (has had a significant equity bend so it's a bit inaccurate to put them purely up against L/S credit funds and they got wrecked beginning of this year)
  3. ~8% Chatham (dubious accounting/markups is pretty sketch especially in some of the names they've been active in...McClatchy...Harland...if you've met their team you'll know what i'm talking about)
  4. ~6% Canyon (classic "good credit fund" but recently high exposure to high-beta industries whether gaming or otherwise has shown in their 1Q20 #s; I'd rank them highly overall just given they've held up AUM in their flagship Value Realization Fund and not destroyed LP capital like other 1990-founded peers)
  5. ~6% OZ Credit (team is sharp despite the multi-strat's overall decline - very active in chapter 11 processes of large cap structures and play heavily in CDS long and short)
  6. ~6% Goldentree (Tannanbaum has no issue building large positions and they have many pockets of capital to build those positions out of whether long-only or true L/S strats; it's a huge shop known to have a tougher culture yet pay well if you perform)
  7. ~6% Brigade (think they did well a few years back and believe 20-30% is CLOs similar to Anchorage/Goldentree/Marathon/pre-blowup-BlueMountain while rest is in different strat vehicles like L/S, struct credit, long-only, CMBS etc covered by one research team)
  8. ~5% Elliott (all things considered still the "best fund" on this list; simply such a huge AUM grower without having needed to unbundle their flagship is pretty unheard of in this industry)
  9. ~5% Monarch (done okay but "much better" if you compare to the industry; Weinstock is a smart guy and their team is well-heeled in gov't and chapter 11 control-processes but at same time AUM remains pretty stagnant despite positive results meaning their redemptions basically are trading places with returns which is a sign of declinign revenue at the GP level)
  10. ~5% DK (done better than King Street at least...)

Other funds up there that i'm too lazy to pull records for include Diameter, Taconic, Redwood, Knighthead (ignoring 2018/2019 where they did HORRIBLY), Whitebox, Contrarian, Apollo (their main ~3bn credit HF + obvi their PE group that plays in same space). Sure I'm missing some random 1-3bn players in the list. Some funds run a levered strategy of their main flagship that i also included (Whitebox is known to run levered, Taconic 1.5 etc.) but aren't really as comparable.

There isn't a "Goldman Sachs is better than JP Morgan" ranking of HFs for good reason. That original list was just a copy paste of one of the 2015 topics and I made a further topic that broadly lists almost all the relevant players in the space. You can pick and choose your "Solus getting redemptions", "BlueMountain shutting down" or King St/Anchorage/blah blah losing aum....I'd argue that you'll be hard pressed to find any "good news" about many firms outside a select few like an Elliott or a successful launch like Diameter.

End of the day, if a firm is growing AUM and expanding as a business that is a very positive sign as they will remain relevant players in the space. If they are contracting from redemptions/irrelevance in the field, that is relval-all things considered, a "worse off place". The larger credit managers, whether you think of Canyon, GoldenTree, Oak Hill, DK, Brigade, MF credit arms (Apollo/KKR/Ares + OAK / Centerbridge etc) have done well for themselves in that regard.

The small firms that haven't turned into Solus are lucky that they didn't make one big concentrated bet in a really shitty credit, that's really the key difference.

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  • Associate 2 in HF - Other
Apr 29, 2020

this is great and jives with everything I've heard and known as well. for the traditional multi-Strat credit funds like Brigade, Goldentree, Canyon etc. where they have HY sleeves, CLO sleeves, l/s credit hedge fund and distressed drawdown sleeves, do you have any insight into the AUM mixes for that?

My understanding from conversations with folks is that Goldentree AUM is 50% CLO and 50% fun stuff (liquid HF and traditional drawdown Distressed).
Canyon I'm not sure and would be very interested to know Brigades. people speak very highly of them but it's clear from Bloomberg articles they had a bad performance in their hedge fund vehicle from energy, so I'm wondering if it's like only 10-20% distressed & hedge fund vs. 80% CLO/performing.
King Street as well is almost CLO AUM than HF AUM I've heard

  • Analyst 2 in HF - EquityHedge
May 2, 2020

OMG. We actually have someone on WSO who knows what they are talking about!!! jokes aside yea the original list is completely out of date.

May 2, 2020

.

Array

  • Prospect in IB - Gen
May 19, 2020

u forgot monarch

Mar 15, 2019

Knighthead
Beach point
Mudrick
Contrarian

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Mar 16, 2019

Jason Mudrick is very astute investor, and came from Contrarian. Knighthead is also a great firm that came out of Redwood.

Beach Point I think of as more a high yield shop that will get sometimes stuck as term lender in distressed situations (see Cumulus).

Mar 16, 2019
DistressedFund123:

Jason from Mudrick is very astute investor, and came from Contrarian. Knighthead is also a great firm that came out of Redwood.

Beach Point I think of as more a high yield shop that will get sometimes stuck as term lender in distressed situations (see Cumulus).

Haha redwood was another I meant to mention but forgot when I was typing.

There are also up and comers and places that have started up in the last couple years

Axar
Marble Ridge
Nokota
JH Lane
Lion Point

Apr 29, 2020
DistressedFund123:

Jason from Mudrick

You mean Jason Mudrick?

  • Intern in Other
Apr 29, 2020

What about DE Shaw Special Situations?

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  • Analyst 2 in HF - EquityHedge
May 2, 2020

L O L

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  • Intern in Other
May 2, 2020

damn why'd I have to get MS I'm just asking bc there's not much info

  • Analyst 1 in IB - Gen
May 1, 2020

Anyone has views on this for Europe? There seems to be many smaller distressed funds in London but what about the larger ones?

  • Associate 2 in HF - Other
May 1, 2020

basically 90% of the them are London branches of US based hedge funds lol. I can't think of any big London based distressed debt fund. Bybrook has $2.4bn AUM, Attestor has over $5bn....Tresidor, Aptior, Ironshield, they're all sub $200mm I believe. everything else is so small. I must be missing something but it would be crazy if Attestor was the biggest london based distressed fund. HayFin maybe idk. I guess BlueBay and BlueCrest (pre-FO)

  • Analyst 1 in IB - Gen
May 1, 2020

That makes sense, thanks. And then I guess these US funds with a London branch have Europe-dedicated funds? Who are the US funds with a large portion of AUM focused on Europe?

There also seems to be more PE houses focused on distressed debt in Europe?

I am quite new to all this so would appreciate any colour!

May 1, 2020

Looking through this thread, I'm curious what everyone's thoughts are on the sustainability of the strategy. It's seeming more and more like purely distressed credit isn't a sustainable strategy to run a fund outside of opportunistically shifting to it when the environment calls for it and shifting to either event driven/value/activist equity-oriented strategies or more RV-based convert arb and SS credit strategies when the environment isn't prime for distress.

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May 2, 2020

I don't think I agree with that. Distressed investing is cyclical so yes there will be very good years and very bad years of performance but LPs are aware of that when they do their asset allocation exercise and they are fine with it. Also it is essentially not possible or at least not probable that an investor can time the markets cycles so you might want to have a distressed allocation at all times to be ready.

That being said most funds do a bit more than pure distressed e.g. buy some 10% yielding bond with a margin to get to your 20% target IRR which is more of an aggressive high yield play than pure distressed which a lot of distressed debt funds do in "good times". So in a way I do agree that it might not work well to do only pure distressed debt (as you do have to deploy capital after all) but I also think that that distressed debt funds can be (and are) independent funds focused on distressed. As I understand it, it is why you hear "distressed debt and special situations" so often where special situations are those slightly different high yielding debt strategies that can happen even in "good times".

May 1, 2020

Yes, I agree with the previous comments. Distressed works best as a complimentary and non correlated strategy of a multi strategy hf or big AM, rather than a core / only strategy

  • Analyst 1 in IB - Ind
May 2, 2020

All the posts above have been pretty insightful, but it seems the old "list" is a bit outdated performance wise. In terms of launching a career in distressed what would some of the best shops out of IB be? What's the consensus on starting out at a smaller shop (more responsibility) versus larger shop (more staying power and dollar influence)?

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  • Incoming Analyst in Other
May 2, 2020

I'll just be starting out of college at a distressed shop and have worked at one of the up and coming names on the list up there but I don't really have any real experience so my words probably don't matter a lot but here's what I would do:

I would rather start out at the up and coming smaller shop I worked at vs say elliott/york/anchorage. Don't get me wrong, I'd love to work at the latter funds and would probably take an opportunity to do so in a hearbeat, but if I have the option, from my experience, I'd rather go to the former. I'd rather take on much more responsbility, get more involved in the rx/turnaround process and have more say in the investment recommendations as I start and get more involved in smaller/hairier mandates vs be just another analyst that probably won't really get involved in a rx/turnaround process until a year or so and just take a look at larger deals. Of course a fund like elliott would probably have the ability to control the process in much larger deals and you would get more exposure to more big name deals, but at the same time I would argue that you would get the same exposure but at smaller names at the smaller shops too - the smaller shops would have the ability to take control of some of the processes they get involved in if they want. You might get involved in the larger deals like at Elliott/Anchorage at the smaller shops too but probably won't have as much control over the process or maybe limited to how much control you have because of the size of the investment. Generally speaking, I think I would get a lot of exposure right from my first day at the smaller shop vs the larger shop regardless.

In terms of career growth/comp, I've seen guys from my earlier fund who have come from the big name shops like SVP/Anchorage/Elliott and quickly rise up the ranks and get more say in the investment decisions, sit on boards, etc. at the smaller shops, and I've also seen a couple of guys who have joined the fund out of IB/MBA and then leave for the likes of Anchorage/Elliott/SVP at a more senior role. I wouldn't necessarily say that starting out at one vs the other stunts your growth trajectory and that isn't something that would make my decision between small shop vs large shop particularly harder. From my exp, the guys at either of the funds tend to know someone/have some connection to guys at most of the distressed shop because it's a small world so I'm sure if you do well and have a nice relationship, someone wouldn't mind helping you to land another seat.

Idk how much this influences people's decisions, but benefits might be different at a smaller shop vs a larger shop, but you will still get the standard daily 40 or whatever dollar meal allowance/travel allowance at the smaller fund and at the larger fund, still have free meals at both shops, get good health benefits, etc. Sure, idk but maybe Elliott has its own gym for its employees or has a private jet but who cares?

The only people who probably look up to someone working at Elliott and look down at someone at say the up and coming fund are high school kids who haven't worked at a fund before or ib guys who just chase brand names. It comes down to what type of mandates/deals or teams you prefer to work on at the end. Do you want to get more involved in larger processes or do you find smaller deals more interesting? Are you ok with not always having the ability to get involved in processes because of the size of your investment or do you want the ability to be involved in larger processes? I don't think there's any consensus that you would be better off working at a larger shop vs a smaller shop. Sure, the smaller shop might blow up sooner than the larger shop but you could say the larger shop has more drawdowns because of a bad big name deal as well but this industry is about taking a risk so that's a risk you should assess for yourself as well

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  • Analyst 1 in IB - Ind
May 2, 2020

real helpful man. How's comp and hours lining up during these times, or at least for you, your experience in your internship?

May 2, 2020

Anyone have data on how some of the big credit funds listed on this thread have fared in 1Q20? The post above with the 3 year annualized returns is great, but was wondering if people have numbers for how these funds have done through the crisis. Seems like how funds perform through this will have big impacts going forwards.

Array

May 2, 2020

A lot of the larger distressed funds got shit on in March ..like high single / low double digits for the year. Gonna take time for funds to profit from the crisis.

  • Analyst 1 in IB - Restr
May 19, 2020
Comment
May 19, 2020