GAIM Speakers Talk Up Financials, Distressed

Jan 23 2008 | 9:17am ET

The growing consensus at the Global Alternative Investment Management conference is that 2007 and 2008 will bear very little resemblance to one another.

Participants expressed optimism about battered financial stocks and distressed asset investing, while throwing cold water on last year’s hottest strategy, emerging markets.

Steven Galbraith, a limited partner in the $12 billion hedge fund shop Maverick Capital, told attendees that his firm is getting “cautious” about emerging markets, far and away the best-performing strategy in 2007, Reuters reports. Many emerging markets “are priced to parity with developed markets” in spite of their higher risk, he added.

But Pequot Capital Management founder Arthur Samberg said that some emerging markets are likely to pay off in 2008, although there is likely to be more volatility in those countries.

“I think things are just starting up in India,” he said at the conference in Boca Raton, Fla.

By contrast, Maverick’s Galbraith is bullish on financials in 2008, at least eventually.

“I think they will be a source of great returns this year,” he said. But he cautioned, “We’re probably a quarter away from the bottom.”

Others, including Samberg, think distressed investing could offer investors big returns in the years to come. He said Pequot is raising its third distressed fund, which will aim to fix “what has been broken” among subprime-struck companies.

Asked about his best investment ideas, Marathon Asset Management CEO Bruce Richards said, “distressed, distressed and more distressed.”

“It’s the greatest time we’ve seen since 1990,” he said, calling it a “trillion dollar-plus opportunity” with “not nearly enough capital.”

Michael Roth, founder of $13 billion hedge fund shop Stark Investments, disagreed on that point, arguing that there are too many new funds raising too much money for too few distressed opportunities.

“I think a monolithic amount of capital is chasing too few opportunities,” he said. The strategy will be “a much smaller opportunity than expected.”


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