Union Bancaire Privée Preps Distressed Funds of Hedge Funds

Apr 21 2008 | 8:42am ET

Yet another hedge fund operator is diving into the burgeoning distressed-debt market looking for a piece of the action. Switzerland’s Union Bancaire Privée is looking to make some noise with the launch of a pair of funds of hedge funds in June focused on distressed hedge fund and private equity managers.

UBP’s DCO Distressed Fund, a broadly focused distressed fund, is looking to raise $300 million to invest in 20 to 25 hedge fund managers. The fund also has a 25% allocation to private equity for institutional investors with p.e. mandates.

“We think it is a good time to be looking at the strategy, but we're certainly not believers in that defaults are going to increase within the next few months or so,” said Schoaib Khan, portfolio manager. “In fact, we see large bankruptcies and distressed coming to market further down the road later on this year and next year.”

Khan said that the bank sees opportunities in the leveraged loans and bank loan markets, structured-product areas and credit arbitrage, “because when you have dislocations like in the loan market but you haven't seen dislocations in the high-yield market, that creates arbitrage opportunities.”

He also noted that this is the beginning of a cycle where there are going to be pockets of opportunities that move around so the bank is building a product to “capture the vast majority of these opportunities” in niche funds such as structured credit, an area where hedge fund managers need a lot of expertise and relationships.

UBP is also launching the Selectinvest Focused Recovery Fund, managed by its New York team, which is also investing in hedge funds. The fund, which also has a $300 million target, is a more concentrated vehicle and is based on capital calls with a longer-term structure to “capture various other opportunities.”

UBP currently manages a total of $121 billion with $53 billion allocated to hedge funds.

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