Global Economics

Distressed Assets Attract a New Breed of Buyers


As hedge funds struggle, distressed assets are attracting more private banks, boutique firms, local Asian players, sovereign wealth firms, and other investors

The question of who will be among the new breed of distressed asset buyers was one of the topics raised at the AsianInvestor- and FinanceAsia-sponsored Distressed & Troubled Asset Investing Summit last week. After all, many hedge funds focused on distressed assets have been struggling since the onset of the global financial crisis.

It was concluded that the financial industry landscape has changed completely and that new players are definitely coming on board. We can expect to see more participation from private banks, boutique firms, local players, and even sovereign wealth funds and institutions, according to panellists at the conference.

Another trend involves the changing landscape for intermediaries. As Walter Molano, managing partner and head of research at BCP Securities, notes, the buzzword these days is "boutique".

"Now that managing money is not that easy and it's difficult to get funding, but there's still a lot of intermediation to be done, we're going to see teams of four to five raising capital," Molano says.

Steve Sloan, managing director at Cogent Partners, expects traditional private equity funds to raise significantly less than in previous years, likely around $35 billion to $45 billion worldwide this year. He expects to see more action in the secondary market for private equity, predicting around $60 billion in transactions.

He notes that there is growing interest among investors, such as sovereign wealth funds and institutions, to enter the secondary market due to the opportunity to buy into assets at huge discounts.

Despite the gloomy scenario in financial markets, which is expected to lead to the distressed opportunities, speakers at the conference also concluded that there's no reason to rush into buying distressed assets in Asia at the moment. Traditionally, there have been vastly more distressed asset opportunities available in the US and in Europe, and the US-led financial crisis has made this even more apparent. Any bargain hunting of assets to be done in Asia can wait.

Ed Altman, professor of finance at New York University's Leonard Stern School of Business, who is best known for the Z-score linear bankruptcy predictor that he pioneered decades ago, says it's too early for the distressed industry to pile into defaulted assets.

"You can lick your lips and say: look at those opportunities," Altman says. "But they will also be there in six, nine and 12 months."

Robert Appleby, CIO at ADM Capital, notes that better valuations could be in the offing in Asia as companies are likely to suffer more as the crisis unfolds, but adds that "it's going to be a while before true distress comes out".

Other panellists at the conference also appear ready to wait in Asia for up to six more months.

"We're going to wait and see how things cycle out," says Brian Chinappi, head of acquisitions for Asia ex-Japan at RREEF Alternative Investments.

Bernard Lau, managing director at Nomura capital, says he expects to see more opportunities in Japan's property sector within the coming 18 months.


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