10/03/2012

Solus Expanding Bankruptcy-Claim Strategy

Solus Alternative Asset Management is doubling down on a recently hired portfolio team that invests in bankruptcy claims.

The $2.7 billion debt-fund operator has begun marketing a second vehicle targeting the strategy, just two months after closing on $490 million for the first fund in the series, dubbed Solus Recovery Fund. Portfolio managers Scott Martin and C.J. Lanktree, who joined Solus earlier this year from Deutsche Bank, target both liquidation claims and litigation claims tied to late-stage bankruptcies.

The New York firm began raising capital for the first fund in March, and by July had exceeded its fund-raising goal. The portfolio has gained about 10% in seven months.

Itís unclear how much Solus aims to raise for the follow-up vehicle, Solus Recovery Fund 2. But investors have been showing a healthy appetite for the strategy. Thatís partly because the proprietary-trading desks of large banks, which had been active players in the secondary market for bankruptcy claims, have been pulling back in response to the Volcker Rule provision in the Dodd-Frank Act. The upshot is more opportunities for buyside shops like Solus.

The recovery funds offer liquidity terms somewhere between those of a typical hedge fund and a private equity vehicle, with a three-year investment period during which investor capital is locked up. They charge a 1.5% management fee and 15% performance fee, though the manager wonít take its cut of profits until all investor equity has been returned.

Solus founder Chris Pucillo hired Martin and Lanktree on March 1 to run the bankruptcy-claim strategy. They previously managed distressed investments at Deutsche. Pucillo, Martin and Lanktree started out working together in the 1990s at Bankers Trust, which was acquired by Deutsche in 1998.

Solusí flagship hedge fund, dubbed Sola, managed some $4 billion at its peak before the financial crisis. But a 19% loss in 2008 elicited a slew of redemption requests, prompting Pucillo to suspend redemptions and restructure the vehicle. As of the first quarter, the Sola fund was managing gross assets of $2.6 billion, according to a regulatory filing.

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