He began his finance career as an equities trader at Goldman Sachs Group Inc. in 2001 after studying mathematics at the University of Cambridge. He worked on the Technology, Media and Telecom team at the firm and later focused on special-situations investing. Marshall Wace hired him two years later and made him a partner in 2005. Rehman, who is currently pursuing a PhD in quantum mechanics, left in 2009 to invest his own money in illiquid assets and fund liquidations.
FIM is not Rehman’s only Madoff-linked investment. He still holds bets tied to Kingate, Fairfield Sentry and Fairfield Sigma. Rehman has successfully realized gains in claims he bought tied to Thema International Fund Plc, the Irish investment fund that helped open the floodgates of European cash for Madoff’s firm in the early 1990s, as well as Hermes International Fund Ltd.
Some 2008-era liquidations are still ongoing, says Hedgebay’s Herman. These include a Harbinger Capital Partners side-pocket created to park a soured bet on a Vietnamese casino, Grand Ho Tram Strip, in which the firm invested more than $450 million, and a minority stake in a telecommunications company previously known as LightSquared into which it poured at least $2 billion. Side-pockets tied to Highland Capital Management and Bennelong Asset Management also remain.
“We transact in these things and people still have them and they still exist,” Herman said.
Eventually, many of the bets that turned illiquid and are sold to investors like Rehman in the secondary market may lead to handsome profits but the wait can be excruciatingly long.
Take Enron Corp. for example. Once the biggest U.S. energy trader, Houston-based Enron filed for bankruptcy in 2001. Its liquidation took more than a decade but its unsecured creditors got a 53% payback, or more than $21 billion in cash and stocks — triple the recovery estimated by the estate in charge of overseeing the process.
Some subordinated debt issued by Lehman Brothers before its collapse in 2008 could lead to a windfall of several hundred million pounds for Deutsche Bank AG and other distressed-debt investors. The notes were changing hands for next to nothing more than five years ago. The wait continues, however.
For buyers of such distressed assets, a lot more may be heading their way.
“The lesson for many hedge fund investors in 2008 was ‘get the hell out first,’” said Andrew Beer, founder of New York-based Dynamic Beta Investments. “Early movers got cash and late movers got side-pockets. Given the environment over the past few years, I suspect we’ll see a repeat of the side-pocket nightmare of 2008.”
--With assistance from William Shaw.
This article was provided by Bloomberg News.