GLG launches fund to buy company debt

GLG Partners, one of London’s largest hedge funds, has launched a new fund to invest in the debt of troubled UK and European companies.

The fund will be one of the most significant launches in London so far this year, as a growing number of hedge fund managers and investors turn to so-called distressed strategies in pursuit of potentially huge returns.

GLG’s fund already manages about $300m of clients’ money, according to people familiar with the situation. It began trading earlier this month, having previously been run as a component strategy within GLG’s existing credit and market-neutral funds since July last year.

The fund is managed by Galia Velimukhametova, formerly the head of the European operations of King Street Capital, the $16bn (£10bn) US hedge fund.

In spite of a heightened interest in distressed strategies, few new distressed funds have launched this year. Several, such as mCapital, a fund set up by Mark Devonshire, the former head of credit trading at Merrill Lynch, have faced protracted difficulties in securing capital from still-wary investors, in spite of strong records.

GLG’s distressed strategy returned 84 per cent since January, prompting the decision to launch the fund as a separate offering to outside investors.

Emmanuel Roman, GLG’s co-chief executive, has said the company was looking to “opportunistically deploy capital over the next 18 months” when Ms Velimukhametova joined the company last summer.

For distressed funds, which are highly cyclical and typically have only a two- to three-year lifespan, timing is crucial.

Funds that invest in troubled companies too quickly risk suffering big losses if markets continue to worsen. Some of the most prominent distressed specialists were caught by the length and severity of the recent market downturn.

Cerberus Capital suffered huge client redemptions after its investments in Chrysler and GMAC ran into trouble this year.

However, unlike many distressed strategies, the GLG fund will focus on tradeable, liquid securities and avoid protracted restructurings – typically favoured by more “activist” distressed investors.

The GLG distressed fund will also aim to invest primarily in European companies. Historically, distressed strategies have focused on the US market, where a unified legal system presents fewer regulatory hurdles in restructuring and bankruptcy situations.