Distressed Investor Maglan Capital Posts 6.55% Return in October

Nov 11 2015 | 2:14pm ET

Distressed investing specialist Maglan Capital posted a +6.55% return net of all fees and expenses for October, well ahead of the fund’s benchmark and bringing year-to-date results to a net -5.43%, according to an investor update seen by FINalternatives.

The firm observed that ZIRP has encouraged investors to chase risk assets while regulations such as Dodd Frank have concurrently shifted risk-taking from banks to hedge funds and assets managers, which have a much less stable capital base. The result could be forced investment liquidations and untimely exit from investments, says Maglan.

At the same time, many event-driven, value-oriented investment managers are sending mixed messages, according to the company. Many say that they are getting ready for the number of corporate defaults to rise and for the next distressed wave to begin, yet they are all almost fully invested in current situations, many of which are equity-based.

The best active investment strategy is thus is one with “an immediate value-driven focus in equity positions, with an eye toward dislocation in debt markets that will be incited by a Fed rate-hike,” writes Maglan. 

The investor letter also described the decline in high-yield bond liquidity since the financial crisis, writing that September’s volatility is likely to be a taste of things to come as large players are increasingly hampered by capital constraints. At the same time, however, Maglan observes that the high-yield market has seen strong inflows, which suggests a tremendous amount of dry powder is waiting for a downturn, and that a persistent risk-off environment may still be a ways off. 

Founded in 2011 by former Credit Suisse executives David Tawil and Steven Azarbad, Maglan is an event-driven hedge fund with a focus on the liquid instruments of companies approaching, in, or exiting bankruptcy. The firm typically carries a concentrated portfolio of 12-15 high-conviction investments in single-name, largely unlevered core long positions across the capital structures of small- and mid-cap companies.

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