Tuesday, 27 September 2016
Last updated 1 hour ago
Nov 13 2013 | 12:31pm ET
New York-based hedge fund Maglan Capital gained 4.12% during the month of October, bringing its year-to-date returns to 39.82%. If the firm keeps up its solid performance, it just may beat its 2012 returns, which saw the fund up 41.03% for the year.
The fund’s steady performance also seems to be catching investors’ attention. Maglan, which currently boasts assets under management just north of $60 million, is “in serious discussions with some large allocators and can scale its book up to $250 million without changing much of anything,” said David Tawil, portfolio manager of the firm.
Before co-founding Maglan with Steven Azarbad, Tawil was an investment banker at Credit Suisse, serving as director of leveraged finance and co-manager of its fixed-income alternative asset trading business. Before that, he was an attorney with Davis Polk & Wardwell, specializing in workouts and bankruptcies. It is therefore no surprise that the fund focuses on these areas.
“We are event driven guys with a distressed focus, so everything that we do has to have some sort of bankruptcy, turnaround or restructuring connection to it,” Tawil told FINalternatives.
Maglan holds a small portion of its portfolio in Puerto Rican municipal bonds, though this type of investment is a rarity for the fund. “[Puerto Rican debt] was particularly interesting because of the dollar price and how far down the debt has traded—so it becomes compelling at 50s-60s if I can buy paper there, and we think it can go to 80 inside of the next year,” said Tawil.
As for the firm’s current success, Tawil chalks it up to their investments in the equity of companies that are restructuring.
“We don’t see a lot of distressed debt these days…there is a lot of capital out there allocated to distressed debt as an asset class, so situations like Exide, Kodak, and American Airlines are going to be chased by everybody,” he explained. “We find that the greatest upside opportunities have been in turnaround equities—some very large and some smaller, middle market ones. That is where we have seen a lot of our gains over the past two years…I think the next 12-18 months should be much of the same.”
And Tawil warns people not to hold their breath when looking for distressed deals.
“I don’t think distressed returns in earnest until 2016 because of the low interest rate environment and the refinancing that has gone on over the past couple of years.”