Too many opportunities, too few managers for world of distressed debt


Allocators believe that there are not enough experienced local European distressed debt managers to satisfy the investment potential that lies ahead.

Inescapable politics

Barker says political influence around some European restructurings has made the process "politically motivated and coercive".

GLG's Velimukhametova says she has kept away from situations where political influence was a potential threat.

But she adds, there are signs the importance of Europe having so many bankruptcy laws and processes, which confuse and deter inexperienced managers, may be lessening.

This is because a growing number of European companies are having bankruptcy proceedings conducted in the UK, which has, she considers, a far more efficient and well-established system.

Germany's Schefenacker and Deutsche Aluminium, and Greece's Wind Hellas are examples.

Velimukhametova says, getting rid of shareholders can be hard and the process "very politically driven" in Germany.

In France, going hostile "can get you nowhere". Spain is "an unknown territory", which is why she has avoided this territory.

"The benefit of being completed quickly in the UK outweighs, by far, benefits you may get from knowing a local process.

The difference in the time it takes on the Continent could be massive, and the destruction of value enormous," she said.

Allocators, and Velimukhametova, emphasize the importance of having active short positions in a fund, and identifying idiosyncratic opportunities that are not dependent on the broader market's direction.

Neuberger's Majit appreciates shorting skills, and he will look for managers willing to exercise them, for risk protection at least.

He recognises the size of a short book will change at different times in the economic cycle.

Finding opportunities long and short helped GLG's fund post flat returns in 2008 while her strategy rivals fell 25.2%.

It then made 110% gross returns in 2009 versus competitors' 28.1%. In 2010 as markets rose one quarter of her 35.5% gains came from short positions.