Debt funds have received more inflows and swelled more than any other category since 2009 to include $639.7 billion of assets as of March 31, HFR data show. They have surpassed the size of equity-hedging strategies, which reported about $4 billion of redemptions in the period and now include $638.7 billion of assets, according to the data.
That growth also is attracting talent.
“There’s a continuous brain drain on Wall Street,” said Jason Rosiak, head of portfolio management at Newport Beach, California-based Pacific Asset Management, the Pacific Life Insurance Co. affiliate that oversees about $3.75 billion. “Hedge funds are playing in asset classes where they previously hadn’t played.”
Distressed Debt
Scott Martin and C.J. Lanktree, who ran a distressed-debt group at Deutsche Bank until last year, joined New York-based Solus Alternative Asset Management LP, where they’ve raised $1.1 billion for two funds that invest in bankruptcy claims.
Such claims are considered risky because they’re backed by companies that have already defaulted on their debt, are infrequently traded and are dependent on the outcome of legal disputes. Banks that decide to hold such investments would be required to have more equity to absorb potential losses compared with higher-rated securities, such as government debt.
“There are businesses based on our capital regulation we’ll not be able to do” that “hedge funds will be able to,” Deutsche Bank Chief Financial Officer Stefan Krause, 50, said at an April 25 conference in Berlin. “If I had to bet who is going to benefit the most post-crisis from the asset appreciation you have coming, then certainly hedge funds.”
BlueMountain Capital
James Staley, the JPMorgan executive who took over the firm’s investment bank in 2010 and was once seen as a candidate to become chief executive officer, quit in January to join $13.6 billion hedge-fund firm BlueMountain Capital Management LLC. BlueMountain was co-founded by Andrew Feldstein, who helped create the credit-derivatives market when he worked for JPMorgan in the 1990s.
BlueMountain reaped as much as $300 million from JPMorgan’s $6.2 billion trading loss last year by betting against the bank and then helping JPMorgan unwind its positions, people with knowledge of the matter said at the time.