D.E. Shaw Readies Europe-Focused Loan Fund

May 7 2012 | 4:07pm ET

D.E. Shaw Group is set to launch a hedge fund this summer with a focus on European loans.

The New York-based firm's Alkali Fund will debut in July. It is unclear how much D.E. Shaw has raised for the vehicle or how much it is seeking, but it will be helmed by the firm's four-year-old asset-backed securities team, which has generated $800 million in profits for a multi-strategy hedge fund.

Alkali will invest in residential mortgage-backed securities, consumer asset-backed debt, troubled loans, credit extensions and corporate credit, Bloomberg News reports. And while it will focus on Europe, the fund may also invest in the U.S. and other regions.

"We believe that a substantial portion of Alkali Fund's opportunity set will result from pressure on European banks to reduce their leverage," D.E. Shaw said in an April document. "We expect that a deleveraging in Europe will occur both actively through asset sales and passively through a reduction in origination of credit and willingness to roll over debt as it matures."

But, the firm added, the European Central Bank's new €1 trillion long-term refinancing program could limit "short-term opportunities."

In addition to the asset-backed team, the new fund will have the assistance of D.E. Shaw's corporate credit managers, and could set up joint ventures with servicers. Already, the firm has "established commercial relationships with a number of loan servicing partners, particularly in Spain and the United Kingdom."

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