For the past nine to twelve months a central question from anyone I meet is: with the markets the way they currently are – how is your business? The answer, maybe surprisingly, has been great. Each month we have more and more clients; each month there are new hedge fund managers who are eager to get their fund up and running. As the conventional wisdom goes, there is always a hot market somewhere and there will always be managers who think they have an edge and who can exploit that hot market. Which brings up the million dollar question – what is the hot market now?
Recently we’ve seen an increase in the amount of asset-based lending and distressed debt funds. With the market dynamics changing and the level of liquidity decreasing on a daily basis, a niche for smaller liquidity providers has arisen. These funds will focus on a variety of distressed debts and other types of assets – we’ve seen: real estate hedge funds focused the acquisition of land, single family homes, multi-family units and other retail properties; asset-based lending hedge funds; factoring hedge funds; distressed debt hedge funds which may buy and repackage certain types of debt including mortgages and credit card receivables. For a discussion on the structure of distressed debt hedge funds (and other hedge funds with hard to value assets) see structure of distressed debt hedge funds.
As noted in this week’s issue of Business Week, hedge funds are stepping up as buyers of pools of mortgages which the banks are selling at fire-sale prices. The article notes that oftentimes distressed debt hedge funds are leaner organizations which have more room to negotiate with borrower’s because of their cost basis in the loan. Because of this, and because their employees deal with far fewer borrowers on a daily and weekly basis, the fund’s are able to fashion more manageable terms to borrowers.
The Business Week article can be located at: